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 large firms hold less cash as a percentage of sales than small ones. Whether comparisons are made within or across industries, the elasticity of cash balances with respect to sales is about 0.8. Firms headquartered in counties with high wages hold more money for a given lever of sales, a finding consistent with the idea that time can substitute for money in the provision of transactions services. The estimates are consistent with both scale economies in the holding of money and secular declines in velocity.