Most large firms hold a cash balance greater than most models imply because:

Question

Quizplus · Accepted Answer

Banks often provide services to firms, such as payment processing and cash management, and these services are sometimes compensated for by the balances that firms maintain in their accounts. This can incentivize firms to hold larger cash balances than might be suggested by simple financial models, which often focus on the trade-off between the opportunity cost of holding cash (e.g., foregone interest or investment returns) and the liquidity benefits it provides.

Most Large Firms Hold a Cash Balance Greater Than Most