Why Has the Value of Cash Increased over Time?

Thomas Bates, Ching Hung Chang, Jianxin Daniel Chi

Research output: Contribution to journalArticlepeer-review

84 Scopus citations


The value of corporate cash holdings has increased significantly in recent decades. On average, $1 of cash is valued at $0.61 in the 1980s, $1.04 in the 1990s, and $1.12 in the 2000s. This increase is predominantly driven by the investment opportunity set and cash-flow volatility, as well as secular trends in product market competition, credit market risk, and within-firm diversification. We document a secular decrease in the speed of adjustment (SOA) in cash holdings, particularly for financially constrained firms with cash deficits, suggesting that capital market frictions can account for the trend in the value of cash holdings.

Original languageEnglish (US)
Pages (from-to)749-787
Number of pages39
JournalJournal of Financial and Quantitative Analysis
Issue number2
StatePublished - Apr 1 2018

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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