SCALE ECONOMIES, THE VALUE OF TIME, AND THE DEMAND FOR MONEY - LONGITUDINAL EVIDENCE FROM FIRMS

COMPUSTAT data on 12,000 firms for the years 1961-92 indicate that lar ge firms hold less cash as a percentage of sales than small ones. Whet her comparisons are made within or across industries, the elasticity o f cash balances with respect to sales is about 0.8. Firms headquartere d in counties with high wages hold more money for a given lever of sal es, a finding consistent with the idea that time can substitute for mo ney in the provision of transactions services. The estimates are consi stent with both scale economies in the holding of money and secular de clines in velocity.