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Review of Finance Vol. 30 No. 5 2026

All you need is cash: corporate cash holdings and investment after the global financial crisis

Andreas Joseph1; Christiane Kneer2; Neeltje Van Horen1,3,4

1 Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom. · 2 German Ministry of Finance, Wilhelmstraße 97, 10117, Berlin, Germany · 3 Faculty of Economics and Business, Roetersstraat 11, 1018 WB, Amsterdam, The Netherlands · 4 CEPR, 2 Coldbath Square, London, EC1R 5HL, United Kingdom

Abstract

This article studies how cash holdings at the onset of the global financial crisis affected the investment behavior of small and medium-sized enterprises (SMEs) after the shock. Using balance sheet data for UK SMEs, we find that cash-rich SMEs maintained their capital stock during the global financial crisis, while cash-poor rivals reduced theirs. This gave cash-rich SMEs an advantage when the economy rebounded, resulting in a persistent investment gap that grew over the recovery period. Competition dynamics, borrowing constraints, and adjustments in cash balances contributed to this amplification effect. The amplification effect was more pronounced for younger and smaller firms and in industries for which credit conditions tightened more. We do not observe a persistent effect of cash in non-crisis periods or for publicly listed firms. Our findings show that when financial constraints tighten after crises, cash holdings are a key determinant of investment by SMEs in the long term.

DOI
10.1093/rof/rfag005
Volume
30
Issue
5
Pages
1535-1576
Language
en
Sources
crossref

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