Critical Finance Review > Vol 13 > Issue 3-4

The Cash Flow Sensitivity of Cash: Replication, Extension, and Robustness

Heitor Almeida, Gies College of Business, University of Illinois, USA, halmeida@illinois.edu , Murillo Campello, Johnson Graduate School of Management, Cornell University, USA, campello@cornell.edu , Michael S. Weisbach, Fisher College of Business, Ohio State University, USA, weisbach2@osu.edu
 
Suggested Citation
Heitor Almeida, Murillo Campello and Michael S. Weisbach (2024), "The Cash Flow Sensitivity of Cash: Replication, Extension, and Robustness", Critical Finance Review: Vol. 13: No. 3-4, pp 351-365. http://dx.doi.org/10.1561/104.00000142

Publication Date: 12 Aug 2024
© 2024 Heitor Almeida et al.
 
Subjects
 
Keywords
G31G32D23D92
Cash flow sensitivity of cashFinancial constraintsCash policyLiquidity
 

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In this article:
1. Introduction 
2. Data Selection and Testing Specification 
3. Replication Over the Original ACW Sample Period 
4. Results for the Extended Sample Period 
5. Robustness to Econometric Critiques and Corrections 
6. Conclusion 
References 

Abstract

This paper reexamines the empirical evidence on the cash flow sensitivity of cash presented by Almeida et al. (2004). The original paper introduces a model in which financially constrained firms choose to save cash out of incremental cash flows but financially unconstrained do not. The authors find evidence consistent with this hypothesis on a sample of U.S. public firms between 1971 and 2000. This paper extends that analysis in a number of ways. In particular, it uses a larger sample covering the 1971 to 2019 window, considers a number of alternative definitions of financial constraints, and incorporates new methods and tests suggested by Welch (2020), Almeida et al. (2010), and Grieser and Hadlock (2019). The original empirical findings are robust to these alternative specifications.

DOI:10.1561/104.00000142