Why firms hold cash

Most users should sign in with their email address. If you originally registered with a username please use that to sign in.

To purchase short term access, please sign in to your Oxford Academic account above. Don't already have an Oxford Academic account? Oxford University Press is a department of the University of Oxford. It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide.

Sign In or Create an Account. Sign In. Advanced Search. Search Menu. Article Navigation. Close mobile search navigation Article Navigation. Volume Why Do Firms Hold Cash? Evidence from Demographic Demand Shifts. Igor Cunha , Igor Cunha. University of Kentucky. Limestone, Lexington, KY ; telephone: E-mail: igor. Oxford Academic. Google Scholar. Joshua Pollet. University of Illinois at Urbana Champaign.

Editorial decision:. Select Format Select format. Permissions Icon Permissions. Abstract We exploit variation in demand induced by demographics to provide causal evidence of the precautionary motive of cash holdings. All rights reserved. Taxes do. Since the U. Income generating assets need to be transferred to the desired locale. To relocate assets between subsidiaries, a firm must assign a value to an intercompany sale.

Appropriate transfer prices — the price used for these within-firm sales — should reflect the value of the asset and minimize the tax benefits of shifting income. There is ample evidence that intellectual property, which is more difficult to value, can be moved more easily to foreign subsidiaries using strategic transfer pricing to facilitate tax minimization. This is not to say that there is not a precautionary need for cash.

However, the impact of tax and precautionary motivations on cash are vastly different in magnitude. This can provide valuable information for executives. Lowering the tax rate substantially reduces — but does not remove — the motivation to shift income since many countries still have far lower corporate tax rates than the U. You have 1 free article s left this month. You are reading your last free article for this month.

Subscribe for unlimited access.