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Corporate Cash Hoarding: The Role of Just-in-Time Adoption

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  • Xiaodan Gao

    (Department of Strategy and Policy, NUS Business School, National University of Singapore, Singapore 119245)

Abstract

I explore the role of the just-in-time (JIT) inventory system in the increase in cash holdings by U.S. manufacturing firms. I develop a model to illustrate the mechanism through which JIT affects cash and quantify its impact. In the model, both cash and inventory can serve as working capital. As firms switch from the traditional system to JIT, they shift resources from inventory to cash to facilitate transactions with suppliers. On average, this switchover accounts for a 4.1-percentage-point increase in the cash-to-assets ratio, which is approximately 28% of the change observed in the data.

Suggested Citation

  • Xiaodan Gao, 2018. "Corporate Cash Hoarding: The Role of Just-in-Time Adoption," Management Science, INFORMS, vol. 64(10), pages 4858-4876, October.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:10:p:4858-4876
    DOI: 10.287/mnsc.2017.2775
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    References listed on IDEAS

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    Cited by:

    1. Tan, Jianhua & Wang, Xiongyuan & Chan, Kam C., 2020. "Does a national reform of a logistics system matter in corporate cash management? Evidence from logistics service standardization in China," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    2. Chase P. Ross & Landon J. Ross, 2022. "Cash-Hedged Stock Returns," Finance and Economics Discussion Series 2022-055, Board of Governors of the Federal Reserve System (U.S.).
    3. Cardella, Laura & Fairhurst, Douglas & Klasa, Sandy, 2021. "What determines the composition of a firm's cash reserves?," Journal of Corporate Finance, Elsevier, vol. 68(C).
    4. Andres F. Jola-Sanchez & Juan Camilo Serpa, 2021. "Inventory in Times of War," Management Science, INFORMS, vol. 67(10), pages 6457-6479, October.
    5. Ma, Liang & Mello, Antonio S. & Wu, Youchang, 2020. "First-mover advantage, time to finance, and cash holdings," Journal of Corporate Finance, Elsevier, vol. 62(C).
    6. Li, Xiaodan & Pan, Zikui & Ho, Kung-Cheng & Bo, Yu, 2024. "Epidemics, local institutional quality, and corporate cash holdings," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 193-210.
    7. Adão, Bernardino & Silva, André C., 2020. "The effect of firm cash holdings on monetary policy," European Economic Review, Elsevier, vol. 128(C).
    8. Julio L. Ortiz, 2022. "Spread Too Thin: The Impact of Lean Inventories," International Finance Discussion Papers 1342, Board of Governors of the Federal Reserve System (U.S.).

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