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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title The Effect of Stock Liquidity on Cash Holdings: The Repurchase Motiv
Organization Unit
  • Kjell G. Nyborg
  • Zexi Wang
Item Subtype Original Work
Refereed Yes
Status Published in final form
  • English
Journal Title Journal of Financial Economics
Publisher Elsevier
Geographical Reach international
Volume 142
Number 2
Page Range 905 - 927
Date 2021
Abstract Text Enhanced stock liquidity increases a firm’s propensity to hold cash. This is surprising given the view that improved stock liquidity reduces financial constraints. We propose that firms have a repurchase motive for holding cash. Higher stock liquidity strengthens this incentive. Consistent with this, firms with more liquid stock increase cash holdings relatively more when restrictions to repurchases are eased. The effect of stock liquidity on cash holdings is not influenced by access to credit markets. Our findings suggest that the repurchase motive dominates the real investments motive with respect to the effect of stock liquidity on cash holdings.
Official URL
Digital Object Identifier 10.1016/j.jfineco.2021.05.027
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