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The study examines how the liquid assets holdings among non-financial Indian firms vary due to tightening monetary policy and increasing macroeconomic uncertainty.

The authors analyze 5,640 firms for the period 2011–2021. The authors first estimate India’s monetary policy shocks by decomposing the exogenous shocks from the systematic component of monetary policy changes. The authors then examine the effects of the estimated monetary policy shocks and a range of macroeconomic and policy uncertainty indicators on companies’ cash and bank balances to asset ratios using two-step system generalized method of moments (GMM) estimators.

The authors find that monetary policy shocks cause the cross-sectional variances for the firms’ liquidity holdings to increase. In anticipation of macroeconomic volatility, companies respond to these shocks after taking into account all the firm-level information to minimize the opportunity costs of holding extra cash or too few cash balances that can hamper firms’ operations. Furthermore, compared to other shocks, the contribution of inflation-induced shocks is predicted to be the largest in the cross-sectional deviation of the firm’s cash holdings. The authors also find that low-growth, older and financially constrained firms observe lesser heterogeneity in their cash holdings as they tend to hold cash as a precautionary buffer.

The authors’ approach to the analysis is unique in many ways. To address potential transmission bias, the authors use nowcasts and forecasts of real gross domestic product (GDP) growth and inflation to generate a series of exogenous monetary policy shocks for identifying unanticipated changes in short-term interest rates. Subsequently, the authors estimate how these shocks affect the cross-sectional deviation of liquid assets. For estimating the effects of macroeconomic uncertainty on corporate cash demand, the authors utilize a range of proxies for uncertainty. Unlike previous attempts, the authors offer evidence for a developing and fast-emerging economy.

The paper examines how equity mutual funds manage their liquidity. Specifically, the authors investigate what strategies fund managers use to meet investor redemption demand, whether these strategies vary over time, whether different type of funds employ different liquidation practices in response to fund outflows, and whether liquidity strategies impact fund performance.

This study uses a sample of U.S. actively managed equity funds over the period 1990–2019. The authors use three different measures to capture funds' liquidity management practices. The authors examine the relationship between fund liquidity measures and net flow by estimating panel regressions over the entire sample period, on 2 sub-sample periods of different market conditions measured by the magnitude of implied market volatility (VIX), and on 2 sub-samples of funds with different liquidity profiles. The authors also examine the relationship between funds liquidity status and near-term performance through both a portfolio approach and regression analysis.

The authors find that on average, mutual funds reduce their cash position and the most liquid asset holdings to meet investor redemption demand. Furthermore, the authors find that fund managers choose different liquidity strategies under different market conditions. During highly volatile markets, mutual funds use cash and their most liquid assets to meet redemption demand while maintaining their portfolio liquidity. During low volatility markets, mutual funds rely heavily on cash but less on liquidity assets and tend to increase their portfolio illiquidity. Upon further examination of funds across portfolio liquidity profiles, the authors find that liquid funds increase portfolio liquidity when facing outflows, whereas illiquid funds maintain their portfolio liquidity position. The different liquidity strategies have significant impact on funds' near-term performance. Specifically, liquid funds underperform illiquid funds following the increase in their portfolio liquidity.

This paper contributes to the literature on liquidity management by asset managers by taking a holistic approach to examine funds liquidation practice at the portfolio holdings level. Considering the recent increase in market volatility, mutual fund liquidity management has drawn an increasing share of interest and attention from policy makers, investment professionals, and academia. This study covers both uncertain and stable market states during a long sample period and provides empirical evidence on the flow-induced liquidation decisions by equity mutual funds. In addition, this paper also contributes to the literature on mutual fund performance by providing evidence that funds' liquidity strategies significantly impact their near-term performance.

The purpose of this study is to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms, for non-financial corporations in the Gulf Cooperation Council (GCC).

The data include all non-financial firms listed in six GCC markets over a period 2005–2019. The IdealRatings database is used to identify Shariah-compliant firms in the GCC. To examine the determinants of cash holdings, a static model is used. To confirm the applicability of the method applied, the Breusch–Pagan Lagrange Multiplier (LM) and Hausman (1978) are used to choose the most efficient and consistent static panel regression.

The results show that, for Shariah-compliant firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, net working capital and operating cash flow. For non-Shariah-compliant firms, the only relevant determinants of cash holdings are leverage, net working capital and operating cash flow. The findings suggest that the cash holding decisions of Shariah-compliant firms can be best explained using the pecking order theory. This reveals that Shariah-compliant firms use liquid assets as their first financing option, due to the Shariah regulations.

Future studies may investigate the optimal levels of cash holdings and compare the adjustment speeds toward target cash holdings of both the Shariah-compliant firms and their conventional counterparts.

This study is the first to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms.

The purpose of this paper is to examine how investors’ valuation of cash holdings is related to firm-level investment.

As prior studies note that holding excess cash serve as a driver to would be over-investing, and that over-investment imposes substantial agency costs on shareholders, the authors focus on the value implications of holding cash in the presence of over-investment from the perspective of shareholders.

By examining the publicly traded companies on Taiwan stock market, the authors uncover that cash is valued less in firms with over-investment than in those with under-investment and the magnitude of over-investment is negatively related to the marginal value of cash holdings (MVCH). It reveals that investment activities impact the value that shareholders place on cash holdings. Moreover, further tests indicate that higher block holdings and the presence of independent directors on boards can effectively mitigate the negative impact of over-investment on the MVCH.

This paper enhances the understanding of the valuation implications of cash reserves held by firms with over-investment and the effectiveness of governance structures in containing the detrimental effect of investment-related agency costs on the value of holding cash.

This paper provides pioneering evidence that outside investors discount cash assets in over-investing firms to reflect their expectations that they will not receive the full benefit of these assets; and this paper extends the literature on corporate governance by assessing the role of governance mechanisms in reversing the negative relation between over-investment and the MVCH.

The purpose of the present study is to discuss the combined effect of predation risk and firms' market power on cash holdings.

The authors tested hypotheses by using consolidated financial data in Japanese firms.

The authors find that firms' cash holdings increase with a rise in predation risk faced by firms. However, the higher the firm's market power, the weaker the above interplay becomes. Moreover, the authors find that even when firms' investments are decreased at the industry level, firms with larger cash holdings seek to mitigate predation risk by funding strategic investments with the potential to steal rivals' market share.

The authors recognize the importance of a firm's market power. Take a firm's market power into consideration to analyze the mechanism of a firm's cash holdings, there is a possibility that the mechanism of a firm's cash holdings as presented by the previous studies will be changed.

We suggest the method of evaluation of illiquid assets on the market in the presence of proportional transaction costs by using two consumption/investment models. We study an investor's implicit evaluation of an illiquid asset whose trading incurs a proportional transaction cost. We show that the investor assigns an implicit value between the bid and ask price and uses it for his investment and/or consumption decisions. We also show that the implicit value is an increasing function of the investor's liquidity ratio, which is a measure of liquidity of the investor's asset holdings.

The purpose of this paper in this context is to examine the impact of asset liquidity on real estate equity returns, after taking well-documented systematic risk factors into account. Due to their unique characteristics, real estate equities constitute an inherently low degree of underlying asset liquidity.

Following the Fama-French time-series regression approach, the authors extend the conventional asset pricing model by a real estate-specific asset liquidity factor (ALF), using a sample of 244 real estate equities.

The results, based on monthly data for the period 1999-2012, reveal that asset liquidity is a relevant pricing factor which contributes to explaining return variations in real estate equity markets. Accordingly, investors expect a risk premium from listed real estate companies with a low degree of asset liquidity, which is especially the case for companies facing financial constraints and during economic downturns. Furthermore, an investment strategy exploiting differences in the underlying asset liquidity yields considerable average excess returns of upto 8.04 per cent p.a.

Considering the findings presented in this paper, asset liquidity should receive special attention from investors, as well as from the management boards of listed real estate companies. While investors who ignore the magnitude of asset liquidity may systematically misprice real estate equities, management can influence the firm’s cost of capital by adjusting the underlying asset liquidity.

This is the first study to examine the role of an ALF in a real estate asset pricing framework.

The author examines key factors which affect intangible asset holdings of foreign subsidiaries of multinational enterprises (MNEs). The author developes the hypotheses by drawing upon the pecking order theory in the finance literature and the institution theory. The author theorizes that MNE foreign subsidiaries combine and utilize their cash holdings (finance-based firm-specific advantages [FSAs]) with host country economic freedom (host country-specific advantages [CSAs]) in their holdings of intangible assets which are internally created and/or purchased. The author empirically tests the hypotheses using a new original dataset of European subsidiaries of US MNEs. The author finds that cash holdings and host country economic freedom share a significant and positive relationship with intangible asset holdings. The author discusses the implications of the findings for theory and practice.

The purpose of this paper is to examine corporate liquidity management of companies listed on the Ghana Stock Exchange (GSE) with the aim of ascertaining the determinants of corporate liquidity holdings.

The paper adopts a dynamic panel model where a lagged dependable variable is introduced as an explanatory variable. Annual data from the annual reports and financial statements of the firms together with the GSE Factbook are used in the gathering of data spanning 1991‐2007. The Arrellano‐Bond estimator is used which incorporates the Sargan test for over identification.

Leverage is found to be not significant to Ghanaian‐listed firms' liquidity demand perhaps due to the developmental stage of the financial market. However, liquidity is found to be statistically significantly influenced by a target liquidity level, size of the firm, return on assets and net working capital.

This is the first of its kind in the country despite the numerous studies carried out on the GSE.

Building societies, as we illustrated in the Preface, occupy an important position in the British financial system. There are at present over four hundred societies although this industry is highly concentrated, with the ten largest societies (with well developed branch networks) in 1978 accounting for 66 per cent of the total assets.