The Causes and Consequences of Corporate Holdings of Marketable Securities

Faculty Development Competitive Research Grants Program 2025-2027

This project delves into the causes and consequences of corporate holdings of marketable securities. It is divided into three interconnected yet independent sub-projects, each addressing a specific research question. The overarching theoretical framework that unifies these studies is the precautionary savings theory (Keynes, 1936). A central hypothesis of this project is that if an adverse cash-flow event is triggered by a macroeconomic or systemic shock, both the liquidity and pricing of investable securities, such as bonds and mortgage-backed securities, will be negatively impacted. This, in turn, makes firms’ cash portfolios more pro-cyclical, diminishing their hedging potential. The question is what are this implications of this, and, if not for precauationary reasons, why do firms hold marketable securities.