Work

The Sensitivity of Cash Savings to the Cost of Capital

Year: 2020

Type: report

Abstract: We show theoretically and empirically that in the presence of a time-varying cost of capital (COC), firms have a hedging motive to reduce the overall COC over time by saving cash when COC is relatively low. The sensitivity of cash savings to COC is especially pronounced with respect to the cost of equity and for firms with greater correlation between COC and financing needs for future investments. Both financially constrained and unconstrained firms respond to low COC by saving cash out of external capital issuance in excess of current financial needs.

Source: National Bureau of Economic Research

DOI: 10.3386/w27517

Authors: Viral Acharya, Soku Byoun, Zhaoxia Xu

Institutions: National Bureau of Economic Research, Baylor University, New York University, UNSW Sydney

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3043784767

Cites:

Cited by: 17

Related to: 10