Asset Redeployability and Corporate Liquidity

This article documents reduced cash holdings for firms with redeployable assets. This finding holds for instrumental variables and matched sample analyses. Additional evidence suggests that firms with redeployable assets shift from cash holdings to credit lines, presumably because the nature of these assets reduces the premium of credit lines as a form of liquidity insurance, especially for firms that face high external financing costs. Banks provide these firms with borrower-friendly ex ante contract terms and protect themselves from ex post risk shifting via the increased use of asset sweeps. The evidence highlights the interplay between the liquidity of short- and long-term assets.