Dutch corporate liquidity mangement: New evidence on aggregation

In this paper we investigate Dutch corporate liquidity management in general, and target adjustment behaviour in particular. To this purpose, we use a simple error correction model of corporate liquidity holdings applied to firm-level data for the period 1977-1997. We confirm the existence of long-run liquidity targets at the firm level. We also find that changes in liquidity holdings are driven by short-run shocks as well as the urge to converge towards targeted liquidity levels. The rate of target convergence is higher when we include more firm-specific information in the target. This result supports the idea that increased precision in defining liquidity targets associates with a faster observed rate of target convergence. It also suggests that the slow speeds of adjustment obtained in many macro studies on money demand are artefacts of aggregation bias.corporate liquidity demand, precautionary liquidity

Dutch corporate liquidity management: New evidence on aggregation

In this paper we investigate Dutch corporate liquidity management in general, and target adjustment behaviour in particular. To this purpose, we use a simple error correction model of corporate liquidity holdings applied to firm-level data for the period 1977-1997. We confirm the existence of long-run liquidity targets at the firm level. We also find that changes in liquidity holdings are driven by short-run shocks as well as the urge to converge towards targeted liquidity levels. The rate of target convergence is higher when we include more firm-specific information in the target. This result supports the idea that increased precision in defining liquidity targets associates with a faster observed rate of target convergence. It also suggests that the slow speeds of adjustment obtained in many macro studies on money demand are artefacts of aggregation bias

Non-Linear Target Adjustment in Corporate Liquidity Management: An Endogenous Thresholds Approach

We provide new empirical evidence on non- linear liquidity management in Dutch firms. Our results reveal that liquidity adjustment from below the target is significantly faster than from above. We find no evidence for bands of inaction around the target.Corporate liquidity management; Non-linear adjustment; Endogenous thresholds; Panel approach.

Nonlinear target adjustment in corporate liquidity management: an endogenous thresholds approach

We provide new empirical evidence on nonlinear liquidity management in Dutch firms. Our results reveal that liquidity adjustment from below the target is significantly faster than from above. We find no evidence for bands of inaction around the target.