For our analysis, we view cash as a liquid investment necessary to support the working capital needs of the
firm, which is closely related to its sales. Therefore, the primary ratio that we examine in our study is the ratio
of cash to sales, computed as the log of cash and cash equivalents to total sales. Though not tabulated, we also
look at two alternative methods to measure cash holdings. First, we compute cash holdings using the ratio of
cash and marketable securities to net assets computed as total assets minus cash and marketable securities,
similar to Opler, Pinkowitz, Stulz, and Williamson (1999). Second, given that industry classification is a
significant factor in the determination of cash holdings, we also create an industry-adjusted measure of the
firm’s cash to sales ratio (cash holdings). To do this, we compute the median levels of the ratio of cash to sales
within the Fama and French 48 industry categories (described below). The industry-adjusted measure is then
calculated as the firm’s variable minus the median industry level of the cash to sales ratio. Using either
measure, we find similar results to those reported using the cash to sales ratio.