Journal of Banking & Finance Vol. 81 2017
Inflation and the evolution of firm-level liquid assets
Abstract
This paper shows that inflation has been an important determinant of firm-level liquid asset holdings. Liquid assets as a share of total assets – the cash ratio – for U.S. corporations steadily declined from the 1960s to the early 1980s, and has since steadily increased. Our empirical analysis finds that inflation is a key factor accounting for these changes. We show that these liquid asset holdings are imperfectly hedged against inflation. Hence, changes in inflation alter the real value of a firm’s liquid asset portfolio causing them to readjust these balances.
- DOI
- 10.1016/j.jbankfin.2017.04.008
- Volume
- 81
- Pages
- 24-35
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib