An Analysis of Cash Holdings of ICT Firms

Abstract

Objectives: The purpose of this paper is to investigate whether the levels of cash holdings and cash reserves of ICT firms are different from those of non-ICT firms. Methods/Analysis: This study in this paper uses regression analysis to examine the association between ICT industry and level of cash holding and cash reserve ratio. Our final sample contains 1,299 Korean listed firms from 2011 to 2013. The key classification is the distinction between ICT and non-ICT firms. The former are firms in the information and communications technology industry, and the latter are in traditional manufacturing industries. Findings: The results of this study indicate that cash holdings and cash reserves ratio are positively associated with ICT firms. ICT firms and non-ICT firms take different approaches to spending and holding their cash. Firms with high sales volatility and capital expenditures including ICT firms hold more cash, and firms with higher leverage and sales revenue hold less cash. While the cash reserve ratio is unrelated to sales volatility, and firms with a high cash reserve ratio are more likely to have higher sales revenue. Conclusion/Application: This is one of few empirical studies that examine the relationship between cash holding and characteristics of ICT firm. This study simply that the level of cash holdings of a firm is affected by not only its capital structure but also industry characteristics. By examining this relationship, the study offers another consideration of the ongoing debate in Korean market about high cash holdings and conglomerate.