Why do firms hold cash? Evidence from demographic demand shifts

Igor Cunha, Joshua Pollet

Research output: Contribution to journalArticlepeer-review

21 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

Bibliographical note

Publisher Copyright:
© The Author(s) 2019. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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