Journal of Financial and Quantitative Analysis Vol. 52 No. 5 2017
Cash Reserves as a Hedge against Supply-Chain Risk
Abstract
Deregulation of the trucking industry and significantly lowered transportation costs led to large, widespread, and plausibly exogenous reductions in inventory for U.S. firms, with consequent increased supply-chain disruption (SCD) costs. We find evidence that increased SCD costs help explain the puzzling long-term trend of increasing average U.S. firm cash holdings. We also find that firms facing higher expected costs of disruptions generally save more cash from capital freed up via supply-chain management innovations. Finally, we document significant postdisruption declines in cash holdings consistent with cash as a primary source of financing during disruptions.
- DOI
- 10.1017/s0022109017000552
- Volume
- 52
- Issue
- 5
- Pages
- 1951-1988
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref