turkmath.org

Explaining cash management policies has become a rapidly growing area in corporate finance. This paper contributes to this literature by exploring how corporate cash management policy is affected by macroeconomic risk. Our model analyzes theoretically the roles played by firm-specific factors as well as macroeconomic factors. We use a hidden Markov model to capture these factors governing the cash flows of firms. We also run a cross-sectional analysis of the key determinants of cash holding.