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American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Corporate Cash and Employment

  • Philippe Bacchetta
  • Kenza Benhima
  • Céline Poilly
American Economic Journal: Macroeconomics
vol. 11, no. 3, July 2019
(pp. 30–66)
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Abstract

In the aftermath of the US financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on US data, we argue that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash and external liquid funds in their production process. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. We show that external liquidity shocks generate a negative comovement between the cash ratio and employment, as documented in the data.

Citation

Bacchetta, Philippe, Kenza Benhima, and Céline Poilly. 2019. "Corporate Cash and Employment." American Economic Journal: Macroeconomics, 11 (3): 30–66. DOI: 10.1257/mac.20150191

Additional Materials

JEL Classification

  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E32 Business Fluctuations; Cycles
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • J23 Labor Demand
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