Issue link: https://www.e-digitaleditions.com/i/201447
Why Firms Stash Cash ON THE WAY to financial recovery after the THOMAS VE N E KLASE N Jarrad Harford Sandy Klasa William Maxwell 2008 economic crisis, U.S. officials are running into an especially frustrating obstacle: Too many corporations are sitting atop record levels of cash that they could use to refuel the economy. In fact, firms in the S&P 500 stock index now have US$1 billion in reserve, according to Standard & Poor's Capital IQ. The reason why firms are so unwilling to spend is the basis of a study by finance professors Jarrad Harford of the Foster School of Business at the University of Washington in Seattle, Sandy Klasa of the Eller College of Management at the University of Arizona in Tucson, and William Maxwell of the Cox School of Business at Southern Methodist University in Dallas, Texas. The researchers find that firms' apparent stinginess is a matter of "once bitten, twice shy." Firms are still skittish after banks all but stopped issuing loans after the 2008 crash—they want to maintain a comfortable reserve in case banks tighten lending practices in the future. The authors note that while banks offer A-rated companies loans that mature in 20 to 30 years, they often offer B-rated companies N ICK WH ITE /G LOW I MAG ES; STE FANO TARTAROTTI /G LOW I MAG ES RESEARCH RECOGNITIONS James Scott, assistant professor of statistics at the University of Texas at Austin McCombs School of Business, has received a National Science Foundation CAREER Award, which includes US$400,000. The funding will support his current research involving the creation of software that solves difficult data-analysis problems such as forecasting disease rates. The American Marketing Association's Marketing and loans that come due in just ten. They find that the average bond maturity for U.S. corporations decreased from 16.6 years in the 1985– 1989 time frame to 11.3 years in 2005–2008. "What happens if you cannot refinance?" asks Maxwell. "If capital markets turn against you, you're done. The A-rated firm rolls over its debt regularly. The smaller, B-rated firm does not have this capacity." The authors conclude that "these findings highlight the usefulness of considering timevariation in the supply of credit when conducting research about what drives corporate financial policy choices." "Refinancing Risk and Cash Holdings" is forthcoming in the Journal of Finance. Society Special Interest Group has given its Lifetime Achievement Award to Ronald P. Hill, Richard J. and Barbara Naclerio Chair Professor of Marketing and Business Law at the Villanova School of Business in Pennsylvania. Hill was recognized for his body of research on restricted consumer behavior, marketing ethics, corporate social responsibility, and public policy. The Federation of European Securities Exchanges has awarded its 2013 De la Vega Prize to French researchers Laurence Lescourret of ESSEC Business School and Sophie Moinas of Toulouse School of Economics for their paper "Liquidity Supply Across Multiple Trading Venues." In their study, the co-authors use a model to analyze the behavior of global dealers in a fragmented global market. BizEd November/December 2013 55