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Minimizing the Costs of Liquidity

Author

Listed:
  • F. K. Wright

    (Fitzgerald Professor of Accounting, University of Melbourne. Thanks for helpful comments and suggestions are due to Richard Allan, Robert Nicol, Robert Officer, Peter Seddon, Samuel Soper, Evan Williams, and an anonymous referee.)

Abstract

Costs of liquidity may be incurred by a firm through its inability to synchronize its cash receipts and payments. Liquidity costs include the opportunity cost of holding funds in the form of non-earning or low-yielding assets, some bank charges, and related transaction costs. Two models for minimizing these costs are presented in detail, a deterministic one, and a stochastic one based on the Miller-Orr model. Their limitations and possible application are discussed.

Suggested Citation

  • F. K. Wright, 1978. "Minimizing the Costs of Liquidity," Australian Journal of Management, Australian School of Business, vol. 3(2), pages 203-224, October.
    • Handle: RePEc:sae:ausman:v:3:y:1978:i:2:p:203-224
    DOI: 10.1177/031289627800300207
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    References listed on IDEAS

    as
    1. Daellenbach, Hans G., 1974. "Are Cash Management Optimization Models Worthwhile?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(4), pages 607-626, September.
    2. Eppen, Gary D & Fama, Eugene F, 1969. "Cash Balance and Simple Dynamic Portfolio Problems with Proportional Costs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(2), pages 119-133, June.
    Full references (including those not matched with items on IDEAS)

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