Federal Dposit InsuranceCorporation• Center for Financial Researchh
Sanjiv R. Das
Darrell Duffie
Nikunj Kapadia
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
FDIC Center for Financial Research
Working Paper
No. 2011-06
The marginal value of cash, cash flow sensitivities, and
bank-fnance shocks in nonlisted firms
February 07, 2011
Empirical Comparisons and Implied Recovery Rates
kkk
An Empirical
An Empirical Analysis
State-
Efraim Benmel Efraim Benmelech May, 2005
June 20
May , 2005 Asset S2005-14
September 2005
Sanjiv R. Das
Darrell Duffie
Nikunj Kapadia
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
Risk-Based Capital Standards,
Deposit Insurance and Procyclicality
FDIC Center for Financial Research
Working Paper
No. 2011-06
The marginal value of cash, cash flow sensitivities, and
bank-fnance shocks in nonlisted firms
February 07, 2011
Empirical Comparisons and Implied Recovery Rates
kkk
An Empirical
An Empirical Analysis
State-
Efraim Benmel Efraim Benmelech May, 2005
June 20
May , 2005 Asset S2005-14
September 2005
The marginal value of cash, cash flow sensitivities,
and bank-finance shocks in nonlisted firms
Charlotte Ostergaard, Amir Sasson, and Bent E. Sørensen∗
Abstract
We study how nonlisted firms trade off financial, real, and distributive uses of cash. We
show that firms’ marginal value of cash (MVC) affects the mix of external and internal
finance used to absorb fluctuations in cash flows; in particular, high-MVC firms employ
substantially more external finance on the margin. Linking firms to their main bank,
we find that shocks to bank finance affect firms’ trade-offs and have real effects in high-
MVC firms, making investment more sensitive to firm cash flow. Our analysis suggests
that shocks to external financing costs are transmitted to the real economy via firms’
marginal value of cash.
Keywords: Cash Holdings, Cash Flow Trade-offs, External Financing Costs, Nonlisted
Firms, Bank Lending Channel
JEL: G32, G21
∗Ostergaard is at the Norwegian School of Management and Norges Bank, Sasson is at the Norwegian
School of Management, and Sørensen is at the University of Houston and the CEPR. We thank Øyvind
Bøhren, Reint Gropp, and Anil Kashyap for helpful comments, the Norwegian Tax Administration, and
Hege Anderson, Norges Bank, for help with the banking data. We gratefully acknowledge financial support
from the CCGR, the Center for Financial Research at the FDIC, and The Foundation for the Advancement
of Bank Studies.
and bank-finance shocks in nonlisted firms
Charlotte Ostergaard, Amir Sasson, and Bent E. Sørensen∗
Abstract
We study how nonlisted firms trade off financial, real, and distributive uses of cash. We
show that firms’ marginal value of cash (MVC) affects the mix of external and internal
finance used to absorb fluctuations in cash flows; in particular, high-MVC firms employ
substantially more external finance on the margin. Linking firms to their main bank,
we find that shocks to bank finance affect firms’ trade-offs and have real effects in high-
MVC firms, making investment more sensitive to firm cash flow. Our analysis suggests
that shocks to external financing costs are transmitted to the real economy via firms’
marginal value of cash.
Keywords: Cash Holdings, Cash Flow Trade-offs, External Financing Costs, Nonlisted
Firms, Bank Lending Channel
JEL: G32, G21
∗Ostergaard is at the Norwegian School of Management and Norges Bank, Sasson is at the Norwegian
School of Management, and Sørensen is at the University of Houston and the CEPR. We thank Øyvind
Bøhren, Reint Gropp, and Anil Kashyap for helpful comments, the Norwegian Tax Administration, and
Hege Anderson, Norges Bank, for help with the banking data. We gratefully acknowledge financial support
from the CCGR, the Center for Financial Research at the FDIC, and The Foundation for the Advancement
of Bank Studies.