Corporate sector cash holding – optimal levels, macro context, or external shocks?

The objective of this paper is to validate the existence of an extensively documented secular upward trend in corporate cash holding. To do this, we use the new data for Poland and review original datasets from Bates et al. [2009] for the U.S. We find no trace of a trend for Poland and believe most trends for the U.S. come from the cash piling toward the end of the sample period. At best, the U.S. trend applies merely to small firms. We believe cash holding is a period-dependent time-varying variable which also depends on external shocks (e.g., the pandemic or tax regulations). We show that simple addition of macro data (GDP in our case) vastly improves models focused only on optimal cash holding and firm-specific characteristics. We call for a new three-stage approach to study corporate cash, in which micro considerations are complemented by macro data and external liquidity shock analysis.