Accordingly, all of the regressions control for fundamental credit risk variables based on Merton's (1974) structural model (firm size, asset volatility, and leverage), additional firm characteristics that could be related with spreads (profitability, cash ratio
, and tangibility), bond characteristics (coupon rate, maturity, issue amount, seniority ranking, and trading volume), and macroeconomic variables (risk-free rate, ten year to two year Treasury spread and three-month LIBOR-Treasury spread).
This period is characterized by the gradual decrease of cash ratio
, measured by cash and cash equivalent to total assets, from 2011 to 2016 (*).
The average liquidity ratios (current ratio X8, quick ratio X9, cash ratio
X10) for industrial companies were very high.
These councils considered the 100% liquidity ratio and 20% cash ratio
as sufficient (http://www.bilgaz.net/dosyalar/OranAnalizi.pdf).
We follow Fresard (2010), adopting Z-scored cash holdings to measure cash level of a company, more specifically, ZCash, is the annual cash holding ratio minus the mean of industry-year cash ratio
based on all companies within the industry and divide standard deviation of industry-year level of cash holdings, also can be referred as relative-to-industry cash.
Also the cash ratio
of the industry is not much stronger as the industry has to pay high debt to its suppliers.
where [CR.sup.i] is the Cash Ratio
Difference for sponsor i, [CR.sup.j] is the Cash Ratio
for peer firm j, and I is the number of peer firms for firm i.
Further the company's quick ratio decreased to 1.8 in FY2013 from 2.1 in FY2012 and the cash ratio
declined to 0.6 in FY2013 from 1 in FY2012.
There are considered the following liquidity ratios: current ratio, quick ratio, and cash ratio
, as well as the following solvency ratios: general solvency ratio, and patrimonial solvency ratio.
Both aggregate technology and liquidity shocks can justify the negative comovement between employment and the corporate cash ratio
. During the financial crisis, the negative comovement between cash and employment was notable.
Bates found a positive association between his cash ratio
(cash divided by total assets) and a market-to-book variable.