Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 17, 2023 erstellt
Description:
This paper investigates the cross-sectional relationship between corporate market power and cash holdings. To begin with, we empirically show that firms with higher markup tend to have larger cash holdings on their balance sheets. Then we rationalize this empirical finding in a model with risky markup and costly external financing. Changes in consumers' taste for quality and producers' marginal production cost increase the earnings-quality gradient sharply in the right tail, which generates a "winners-take-most" phenomenon but also makes current winners inherently riskier. In the presence of external financing costs, firms with risky market power are inclined to rely more on internal financing. Finally, when taken to the data, our model is able to quantitatively match both the upward trend and the cross-sectional variation in corporate cash