Why do U.S. firms hold so much more cash than they used to?

Thomas W. Bates, Kathleen M. Kahle, René M. Stulz

Research output: Contribution to journalArticlepeer-review

1511 Scopus citations


The average cash-to-assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash flows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conflicts contribute to the increase.

Original languageEnglish (US)
Pages (from-to)1985-2021
Number of pages37
JournalJournal of Finance
Issue number5
StatePublished - Oct 2009

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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