Secular Change in the Value of Cash: Evidence in Korea
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This paper studies the secular change in the value of cash in Korean firms. Consistent with the findings in the US market, we find that the cash value in Korean firms has been increasing from 1990 to 2019. The result shows that the average value of a dollar in cash is $0.678 in the 1990s, $1.199 in the 2000s, and $1.440 in the 2010s. The increase in cash value can be partially explained by precautious motivations for financial constraint and firm-level uncertainty, corporate governance, and investor sentiment in the 2000s. As for the 2010s, only firm-level uncertainty, corporate governance, and investor sentiment can partially explain. In contrast to the US market, we find that the new listed firms and investment opportunities cannot explain the change in both 2000s and 2010s.
Abstract
This paper studies the secular change in the value of cash in Korean firms. Consistent with the findings in the US market, we find that the cash value in Korean firms has been increasing from 1990 to 2019. The result shows that the average value of a dollar in cash is $0.678 in the 1990s, $1.199 in the 2000s, and $1.440 in the 2010s. The increase in cash value can be partially explained by precautious motivations for financial constraint and firm-level uncertainty, corporate governance, and investor sentiment in the 2000s. As for the 2010s, only firm-level uncertainty, corporate governance, and investor sentiment can partially explain. In contrast to the US market, we find that the new listed firms and investment opportunities cannot explain the change in both 2000s and 2010s.
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