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Do firms park capital? Evidence from the U.S. manufacturing sector

Authors :
Paul Moon Sub Choi
Francis Joonsung Won
Source :
Investment Management & Financial Innovations, Vol 15, Iss 2, Pp 194-202 (2018)
Publication Year :
2018
Publisher :
LLC "CPC "Business Perspectives", 2018.

Abstract

This study uses the “cost of carry” (CoC) measure to identify the motive for corporate cash holdings. Based on the historical, moving-average holdings of currency and liquid assets, the measure represents the net opportunity cost of corporate demand for money. This study finds that large manufacturing firms in the U.S. park their capital in short-term assets appealing to the agency motive for cash holdings. Because dividend-paying firms can choose to distribute their capital to equity shareholders when their investment opportunities are unfavorable, these firms might show a non-positive association between capital expenditure and the CoC measure, championing the transactions motive. Still, dividend-paying large firms exhibit an overall positive correlation, suggesting that they park their capital on the agency motive. A detailed literature review and discussions are followed.

Details

Language :
English
ISSN :
18104967 and 18129358
Volume :
15
Issue :
2
Database :
Directory of Open Access Journals
Journal :
Investment Management & Financial Innovations
Publication Type :
Academic Journal
Accession number :
edsdoj.6a70ea99647718fb912826ae7950b
Document Type :
article
Full Text :
https://doi.org/10.21511/imfi.15(2).2018.17