Université de Lausanne
Faculté des
HEC
Département d'économétrie
et d'économie politique
Cahier de recherches économiques du DEEP No. 14.09
Philippe Bacchetta, Kenza Benhima and Céline Poilly
December 2014
Abstract
In the aftermath of the U.S. financial crisis, both
a sharp drop in employment and a surge in corporate cash have been observed.
In this paper, based on U.S. data, we document 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 in their production process and where financial shocks are made
of both credit and liquidity shocks. We show that external liquidity shocks
generate a negative comovement between the cash ratio and employment. We analyze
the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic
shocks. With a calibrated version of the model, the model yields a negative
comovement that is close to the data.
JEL Classification: E44; G32; E24
Keywords: Liquidity; Financial Shocks; Working Capital