Basic Income versus Basic Capital

This chapter considers the egalitarian proposal of enforcing a right to unconditional cash. It discusses when the payment should be made—in a lump sum at the beginning of individuals’ adult lives (as proponents of the basic capital grant argue), or in regular installments throughout people’s adult lives (as proponents of the basic income guarantee argue). Drawing on the previously developed temporal framework, the chapter provides an original account of the values underpinning the policies. A number of claims found throughout the literature are systematized and novel arguments are added along the way. The chapter concludes both that the debate between the two policy proposals is best described as a conflict about the temporality of justice and proposes that basic income be the baseline of egalitarian unconditional cash policies. Recognizing the diachronic power of basic capital, though, the chapter ends with an original version of basic income that incorporates a baby bond.

Managing Liquidity in Production Networks: The Role of Central Firms

Firms in the US economy are closely interconnected in a production network and are subject to shocks that propagate within the network. This study examines the liquidity management of firms centrally connected in the network. I show that, while central firms are more exposed to aggregate swings, they maintain higher cash holdings to protect themselves and connected firms against such exposure. Central firms’ cash holding motives are alleviated by firm diversification but are aggravated by industry competition. Such motives are not explained by alternative determinants of cash policies. My findings suggest that systematically important firms proactively dampen the propagation of shocks in the production network.

Information Shocks and Corporate Cash Policies

ABSTRACT We examine how information environment affects corporate cash policy by examining the change in cash holdings around two events that lead to exogenous change in information environment, namely the initial enforcement of insider trading laws (ITLs) and the mandatory adoption of IFRS in European Union (EU) countries. Using a difference-in-differences approach, we find that firms decrease their cash holdings after both events. The decrease in cash holdings is more pronounced for firms with higher precautionary savings demand and with more severe agency problems. Additional tests show that the sensitivity of investment to cash holdings declines after the two events, consistent with the notion that the benefit of cash holdings in mitigating underinvestment and the private benefit of overinvesting cash holdings reduce after the events. Overall, our findings provide evidence that information environment improvements have real decision effects. JEL Classifications: M41; M48; G31.

Cash Holdings, Competition, and Innovation

We demonstrate theoretically and empirically that strategic considerations are important in shaping the cash policies of innovative firms. In our model, firms compete in product markets with uncertain structure using cash as a commitment device to invest in innovation. We show that firms’ equilibrium cash holdings are related to the expected intensity of competition. The sign and magnitude of this relation depends on firms’ financial constraints. Consistent with the strategic motive for hoarding cash, we show that firms’ cash holdings are negatively affected by their rivals’ cash-holding choices, even more so when competition is expected to be intense.

Do bank lending relationships affect corporate cash policy?

Purpose The purpose of this paper is to examine whether prior bank lending relationships affect firms’ liquidity management. Design/methodology/approach The authors mainly work on evaluating first, whether prior lending relationships affect corporate cash holdings? and second, whether the cash flow sensitivity of cash varies systemically with lending relationships. Three different ways are used to define lending relationships, including the lending relationship dummy, a firm’s maximum relationship intensity in terms of number of deals across all lenders and a firm’s maximum relationship intensity in terms of dollar amounts across all lenders. In addition, the paper applies two-stage least squares (2SLS) to address the concern of endogeneity between firms’ liquidity management and banking relationships. Findings The authors find that firms with lending relationships maintain a lower level of cash holdings and save less cash out of cash flow. Furthermore, the effect of lending relationships is more profound for firms with high cash flow. The results suggest that prior lending relations alleviate information asymmetry, lower the cost of capital and therefore affect firms’ propensity to retain cash and maintain a high level of cash holdings. Research limitations/implications This paper contributes to both the liquidity management literature and the literature on the value of maintaining lending relationships with banks. Researchers should take into consideration the lending relationships built over the course of the lending when assessing firms’ cash policies. Social implications Bank lending relationship mitigates the information asymmetry problem, one type of market friction, and facilitates firms’ future external financing, thereby affecting firms’ cash policies and giving more flexibility in liquidity management. The value of lending relationships distinguishes bank loans from public bonds. Therefore, firms, especially those facing more information asymmetry issue, should take into account the benefits from lending relationships in their future debt financing. Originality/value Extant literature examines how firm characteristics affect firms’ cash holdings. This paper introduces a new factor that could explain corporate cash policy.