Discussion Paper

The demand for money by firms: some additional empirical results

Abstract: COMPUSTAT data on 12,000 firms for the years 1956-1992 indicate that large firms hold less cash as a percentage of sales than do small ones. Whether comparisons are made within or across industries, the elasticity of cash balances with respect to sales is about 0.75. Firms headquartered in counties with high wages hold more money for a given level of sales, a finding consistent with the idea that time can substitute for money in the provision of transactions services. The estimates are consistent with both scale economies in the holding of money and secular declines in velocity.

Keywords: Cash management;

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Discussion Paper / Institute for Empirical Macroeconomics

Publication Date: 1997

Number: 125