The Effects of Uncertainty and CorporateGovernance on Firms' Demand for Liquidity

We find that U.S. corporations' demand for liquidity is sensitive to two importantfactors: uncertainty facing the rm and the quality of corporate governance. Fol-lowing prior research, we find that both factors have important influences on firms'cash holdings. Our results also indicate that the interactions between uncertainty andgovernance measures are significant. From a policy perspective, these new findingsindicate both governance and the nature of uncertainty may play an important role inmanaging liquidity risks. Policy recommendations may not only be limited to changesin financial policy but may also include changes in corporate governance....