In our paper, Determinants of Corporate Cash Policy: Insights from Private Firms, forthcoming in the Journal of Financial Economics, we exploit a database of private firms to help understand public firms’ cash policies. It is worth noting that the cash policy of private firms in itself is of great interest to financial economists due to a lack of data prior to our study. Further, the contrast between public and private firm behavior in cash management serves as cross-validation of prior research on cash policies using only public firms. We expect that the variation in agency conflicts across these two groups of firms is likely to be at least as substantial as the variation within public firms. Further, differences across these two groups of firms in financing frictions allow us to explore the relative importance of these two effects on cash levels, the speed of adjustment to target cash, and the dissipation of excess cash.

(more…)