Macroeconomic Environment and the Level of Cash Holding: A Literature Review

Abstract

The level of corporate cash holding is mainly affected by micro factors. In the past 20 years, the relationship between the level of cash holding and macroeconomic environmental factors has attracted more and more attention. This paper first briefly discusses three traditional theories of the level of cash holding, and proposes the leading role of trade-off theory and pecking order theory in this topic. Then, it sorts the relevant literature on macroeconomic fluctuations and macroeconomic policies.

Corporate Cash Holdings and Exposure to Macroeconomic Conditions

“…One potential candidate is variables for macroeconomic conditions. The macroeconomic condition will be an important factor in the level of cash holdings because the macroeconomic condition will have a widespread impact on the corporations (Chen 2021). After the 2008 financial crisis, corporate cash holdings gained much attention in the corporate finance field because corporates can perform the necessary financial adjustments to meet their obligations with the cash holdings without increasing their liabilities or liquidating their assets when corporates face the negative effects of the changes in macroeconomic conditions (Abushammala and Sulaiman 2014).…”