Corporate Liquidity Management: A Conceptual Framework and Survey

Heitor Almeida, Murillo Campello, Igor Cunha and Michael Weisbach

No 19502, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Ensuring that a firm has sufficient liquidity to finance valuable projects that occur in the future is at the heart of the practice of financial management. Yet, while discussion of these issues goes back at least to Keynes (1936), a substantial literature on the ways in which firms manage liquidity has developed only recently. We argue that many of the key issues in liquidity management can be understood through the lens of a framework in which firms face financial constraints and wish to ensure efficient investment in the future. We present such a model and use it to survey many of the empirical findings on liquidity management. Much of the variation in the quantity of liquidity can be explained by the precautionary demand for liquidity. While there are alternatives to cash holdings such as hedging or lines of credit, cash remains "king", in that it still is the predominate way in which firms ensure future liquidity for future investments. We discuss theories on the choice of liquidity measures and related empirical evidence. In addition, we discuss agency-based theories of liquidity, the real effects of liquidity choices, and the impact of the 2008-9 Financial Crisis on firms' liquidity management.

JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-bec
Note: CF
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Citations: View citations in EconPapers (11)

Published as Heitor Almeida & Murillo Campello & Igor Cunha & Michael S. Weisbach, 2014. "Corporate Liquidity Management: A Conceptual Framework and Survey," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 135-162, December.

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Related works:
Journal Article: Corporate Liquidity Management: A Conceptual Framework and Survey (2014)
Working Paper: Corporate Liquidity Management: A Conceptual Framework and Survey (2013)
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