Corporate Cash Balance, Volatility, and Adjustment: Growth Firms vs. Cash Cows

Abstract

Recognizing that variables known to affect optimal cash balance also serve to distinguish growth firms from cash cows allows us to identify and compare the behavior of cash balances and related variables for these two types of firms. Using data on U.S. firms for 1988-2014, average cash balance is 4.5 times higher for growth firms than cash cows. Volatility is also far higher for growth firms with respect to cash balance, operating cash flow, and other cash-related variables. However, adjustment speed is similar for growth firms and cash cows. Growth firms manage cash adjustments with greater use of stock issuances.