What Drives Corporate Liquidity? An International Survey of Cash Holdings and Lines of Credit

We survey CFOs of public and private firms in 29 countries about aspects of corporate liquidity that cannot be obtained from publicly available data. We find that lines of credit are very important liquidity instruments relative to cash holdings. The median line of credit is equal to 15 percent of book assets whereas cash holdings comprise only 9 percent of book assets. Of these cash holdings, the fraction held as non-operational cash (rather than held for day-to-day operations) is only about 40% of the total. Cash and lines of credit are held for different purposes. Lines of credit, which represent options on liquidity, are strongly related to a firm's need for external financing to fund future investment opportunities. Non-operational cash, which constitutes realized liquidity, is not related to future external financing needs and is primarily held as a general buffer against future cash shortfalls. Across countries, firms make greater use of lines of credit, but not excess cash, when external credit markets are poorly developed