University of Kentucky
Lexington, KY 40506
Information about this author at RePEc
NBER Working Papers and Publications
|September 2017||Understanding Precautionary Cash at Home and Abroad|
with Michael W. Faulkender, Mitchell A. Petersen: w23799
Has the need for precautionary savings driven the dramatic increase in U.S. corporate cash? We show that the run-up in cash is concentrated in foreign subsidiaries of multinational corporations. Precautionary motives explain variation in the level of cash held domestically, but not the level or growth of foreign cash. Multinational firms’ foreign cash balances are instead explained by low foreign tax rates and the ability to transfer profits within the firm through among related subsidiaries. The firms with the greatest incentive and ability to transfer income to low tax jurisdictions do, causing cash to accumulate in their foreign subsidiaries.
|April 2017||Risk Management with Supply Contracts|
with Heitor Almeida, Ryan Williams: w23331
Purchase obligations are forward contracts with suppliers and are used more broadly than traded commodity derivatives. This paper is the first to document that these contracts are a risk management tool and have a material impact on corporate hedging activity. Firms that expand their risk management options following the introduction of steel futures contracts substitute financial hedging for purchase obligations. Contracting frictions – such as bargaining power and settlement risk – as well as potential hold-up issues associated with relationship-specific investment affects the use of purchase obligations in the cross-section as well as how firms respond to the introduction of steel futures.