The Demand for Money by Firms: Some Additional Empirical Results*

COMPUSTAT data on 12,000 firms for the years 1956–1992 indicate that large firms hold less cash as a percentage of sales than do small ones. Whether comparisons are made within or across industries, the elasticity of cash balances with respect to sales is about 0.75. Firms headquartered in counties with high wages hold more money for a given level of sales, a finding consistent with the idea that time can substitute for money in the provision of transactions services. The estimates are consistent with both scale economies in the holding of money and secular declines in velocity. *This research has benefitted from discussions with Gary Becker, Hiroshi Fujiki, Bob Lucas, Allan Meltzer, Derek Neal, Xavier Sala-i-Martin, and participants at the October 1994 NBER Monetary Economics meeting. The views expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.