The effect of stock liquidity on cash holdings: The repurchase motive

Enhanced stock liquidity increases a firm’s propensity to hold cash. This is surprising given the view that improved reduces financial constraints. We propose firms have repurchase motive for holding Higher strengthens this incentive. Consistent with this, more liquid increase cash holdings relatively when restrictions repurchases are eased. The effect of on not influenced by access credit markets. Our findings suggest dominates real investments respect holdings.