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A Model for the Determination of Firm Cash Balances

Published online by Cambridge University Press:  19 October 2009

Stephen H. Archer
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Extract

This paper is an attempt to improve on the ability of financial management to arrive at a desirable or close to “optimal” cash balance for a firm at a point in time. There have been several comments on this subject in literature over the years including the contributions of Keynes, Hicks and Samuelson. In recent years Baumol and Beranek have presented us with more specific models. This paper tends to be more operational than the Baumol or Beranek presentations and hence tends perhaps to lose some of the sophistication of the more theoretical models; it attempts to present a reasonably operational method for providing for cash balances for transactions and precautionary purposes. But let us first examine these two models briefly.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 1 , Issue 1 , March 1966 , pp. 1 - 11
Copyright
Copyright © School of Business Administration, University of Washington 1966

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References

1 Keynes, John M., The General Theory of Employment, Interest and Money, New York, 1936, Chapter 15Google Scholar; J. R. Hicks, Value and Capital; Frederick A., and Lutz, Vera C., The Theory of Investment of the Firm, Princeton, N.J., 1951, Chapter 17Google Scholar; Samuelson, Paul, Foundations of Economic Analysis, Cambridge, Mass., 1947, pp. 117–124Google Scholar.

2 Baumol, William J., “The Transactions Demand for Cash: An Inventory Theoretic Approach,” The Quarterly Journal of Economics, 66 (November, 1952), pp. 545–556Google Scholar; Beranek, William, Analysis of Financial Decisions (Homewood, Ill.: Richard D. Irwin, Inc., 1963), PP. 345–387Google Scholar.

3 William J. Baumol, op. cit., pp. 546–556.

4 Whitin, T. M., The Theory of Inventory Management, Princeton, N.J.: Princeton University Press, 1953Google Scholar.

5 William Beranek, op. cit., pp. 345–387.

6 Ibid., pp. 350–351.

7 This statement was made after the paper was presented and was not available to the discussant.

8 Ibid.

9 William Beranek, op. cit., pp. 36O–362.