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.


Issue Date:
2004-11
Publication Type:
Journal Article
DOI and Other Identifiers:
Print ISSN 1514-0326 (Other)
Online ISSN 1667-6726 (Other)
PURL Identifier:
http://purl.umn.edu/37606
Published in:
Journal of Applied Economics, Volume 07, Number 2
Page range:
195-230
Total Pages:
36
JEL Codes:
C33; C43; E41; G3




 Record created 2017-04-01, last modified 2017-08-25

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