Three perspectives on the cash flow sensitivity of cash

Abstract

In this thesis, I analyze the effect of cash flows on changes in cash holdings. I compare the cash flow sensitivity of cash in financially constrained and unconstrained firms, and find that financially constrained firms have a positive and significant cash flow sensitivity of cash. I also investigate cash holdings before, during, and after the 2008 financial crisis. The results show that firms display an increased sensitivity of cash holdings to cash flow changes during the financial crisis. Finally, I study the difference in cash holdings and their sensitivity to cash flow changes in private and public firms and find that private firms have a greater cash flow sensitivity of cash than public firms do. Overall, my findings support the hypothesis that financially constrained firms have a positive cash flow sensitivity to cash.