Corporations built up an extraordinary level of cash reserves during the current expansion. Firms have only recently started to draw down their substantial cash holdings through accelerated shareholder payouts, cash-financed mergers and acquisitions, and increased investment. These developments highlight the strong interest that economists and policymakers have in the interaction between cash balances and investment spending. But what is the link between cash and investment? Has the relationship changed over time? Following an address on the recent build-up of corporate cash balances and the state of corporate balance sheets by Governor Kevin M. Warsh of the Federal Reserve, AEI’s Kevin A. Hassett will present a paper, cowritten with Kathryn Newmark, which investigates the effects of liquidity and taxes on investment. A panel of experts will respond.
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