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Corporate Cash and Employment

Author

Listed:
  • Kenza Benhima

    (University of Lausanne (HEC))

  • Celine Poilly

    (University of Lausanne)

  • Philippe Bacchetta

    (University of Lausanne)

Abstract

In the aftermath of the U.S. financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on U.S. data, we document that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash in their production process. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. We show that liquidity and productivity shocks tend to generate a negative comovement between the cash ratio and employment. In contrast, standard credit shocks produce a positive relationship. A calibrated version of the model yields a negative comovement that is close to the data.

Suggested Citation

  • Kenza Benhima & Celine Poilly & Philippe Bacchetta, 2014. "Corporate Cash and Employment," 2014 Meeting Papers 256, Society for Economic Dynamics.
    • Handle: RePEc:red:sed014:256
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    as
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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