Cash Holdings and Collateral Value. Evidence from a Natural Experiment

Cash Holdings and Collateral Value. Evidence from a Natural Experiment

• Author
• MARCELO DANIEL ARAUJO ERMEL
• Abstract

• I make use of the major credit reform and the new bankruptcy law, empreended by Brazil at the end of 2004 and in early 2005, to investigate the effect of a rise in collateral value in cash holdings. I find that more tangible firms reduced its cash holdings and cashflow sensitivity of cash after the law, compared to less tangible firms. Also, results suggest that more tangible firms reduced short-term debt, corroborating the financial flexibility hypothesis. This result is important to public policy, as it makes firms funds available to more efficient allocation.

• Keywords
• Cash Holdings, Collateral, Natural Experiments
• Subject Area
• Corporate Finance, Intermediation, and Banking

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