The adjustment speed of corporate cash holdings

The current literature provides some empirical evidences about whether firms have target ratios of cash holdings. In my thesis, I employ a partial-adjustment model with panel data of Compustat Industrial Annual tapes during 1974 to 2006. I find evidence supportive of target corporate cash ratios. A typical firm closes each year over 50% of the gap between the actual target cash ratios and its long-run target. My results also indicate that the adjustment speed of cash holdings increases if firm sizes are smaller, firms are more financially constrained or firms have more growth opportunities.