Working Paper presents research work by both Danmarks Nationalbank’s employees and our partners. The series is primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.
Working Paper: Corporate Investment and Cash Holdings under Financing Shocks
I analyze to which extent corporate cash holdings protect firms from the adverse consequences of shocks to their borrowing costs. Despite firms self-insuring against spikes in their borrowing costs by holding cash, an aggregate shock to borrowing conditions similar to that seen during the Global Financial Crisis can significantly contract aggregate investment, especially for firms with low cash holdings.