Why do firms hold cash? Evidence from demographic demand shifts

Igor Cunha, Joshua Pollet

Research output: Contribution to journalArticlepeer-review

8 Scopus citations


We exploit variation in demand induced by demographics to provide causal evidence of the precautionary motive of cash holdings. We show that firms significantly increase their cash levels in response to exogenous increases in investment opportunities. We also provide novel evidence of the dynamics of accumulation and use of cash. Financially constrained firms build their cash reserves using internal sources. Consequently, they start saving earlier and keep high cash levels longer. Unconstrained firms rely on external financing to both invest and build cash reserves, requiring them to save less and allowing them to incur lower costs of carry.

Original languageEnglish
Pages (from-to)4102-4138
Number of pages37
JournalReview of Financial Studies
Issue number9
StatePublished - Sep 1 2020

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Why do firms hold cash? Evidence from demographic demand shifts'. Together they form a unique fingerprint.

Cite this