Citation

Discussion Paper Details

Please find the details for DP10309 in an easy to copy and paste format below:

Full Details | Bibliographic Reference

Full Details

Title: Corporate Cash and Employment

Author(s): Philippe Bacchetta, Kenza Benhima and C�line Poilly

Publication Date: December 2014

Keyword(s): financial shocks, liquidity and working capital

Programme Area(s): Financial Economics and International Macroeconomics

Abstract: In the aftermath of the U.S. financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on U.S. data, we document that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash in their production process and where financial shocks are made of both credit and liquidity shocks. We show that external liquidity shocks generate a negative comovement between the cash ratio and employment. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. With a calibrated version of the model, the model yields a negative comovement that is close to the data.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10309

Bibliographic Reference

Bacchetta, P, Benhima, K and Poilly, C. 2014. 'Corporate Cash and Employment'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10309