New Eller Research Connects Cash Reserves and Financial Securities

March 12, 2021

Faculty Research

Sandy Klasa, professor of finance and Anheuser-Busch Endowed Chair in the Eller College of Management at the University of Arizona, along with two Eller PhD alumni, Douglas (DJ) Fairhurst ’14 and Laura Cardella ’12 PhD, produced a paper that was recently accepted at the Journal of Corporate Finance.

The paper, titled “What Determines the Composition of a Firm’s Cash Reserves?” investigates what determines variation in the composition of the financial assets that constitute corporate cash reserves and how this variation relates to other key liquidity management practices.

“About 15 to 20 percent of the total assets of publicly traded firms is held in cash, which is a lot of money,” explains Klasa. “But the cash is not really cash, it is financial securities with different interest rates and degrees of risk and that are more or less difficult to liquidate when a firm needs to convert securities to cash for expenses. So, in our paper we examine what explains firms’ investment decisions when they invest all of this cash into financial securities.”

Their findings provide insights into an important component of corporate liquidity management decisions, what determines firms’ choices with respect to the financial assets in which they invest their cash reserves. In part, Klasa concludes: “Our findings that firms give important consideration to the fraction of their cash reserves held in less liquid securities that earn a higher yield and that this decision interacts with other key corporate liquidity management practices provides an avenue for future work that could examine how the composition of a firm’s cash reserves relates to other firm policies and decisions.”

Klasa is available to speak further about the research conducted for the paper, the findings and how this impacts businesses for news stories and television segments. To learn more about Eller College of Management, visit