Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Boston
Working Papers
Internal sources of finance and the Great Recession
Michelle L. Barnes
N. Aaron Pancost
Abstract

The rising stockpile of cash as a share of total assets at U.S. firms has intrigued economists since at least the paper of Bates, Kahle, and Stulz (2006), yet there has been relatively little work on where this cash has come from and how it is related to investment performance. We exploit Statement of Cash Flows data from Compustat to decompose firms' cash stocks and show that the rise in cash holdings has coincided with an increased willingness to save internally generated cash. We show that although investment is normally sensitive to externally generated cash, the increased sensitivity of investment to cash during the Great Recession is driven by cash from internal sources. Smaller firms were also more affected by the recent downturn than larger firms. Our results agree with the findings of Almeida, Campello, and Weisbach (2004) on cash hoarding and financial constraints, as well as the estimates in Duchin, Ozbas, and Sensoy (2010) on the important role of saved cash during the financial crisis.


Download Full text
Download Full text
Cite this item
Michelle L. Barnes & N. Aaron Pancost, Internal sources of finance and the Great Recession, Federal Reserve Bank of Boston, Working Papers 10-15, 2010.
More from this series
JEL Classification:
Subject headings:
Keywords: Global financial crisis ; Recessions ; Corporations - Finance
For corrections, contact Catherine Spozio ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal