CASH HOLDINGS WITH THE PRECAUTIONARY MOTIVE AMONG KOREAN CHAEBOL AND NON-CHAEBOL FIRMS: A QUANTILE REGRESSION APPROACH

Abstract

Using a quantile regression approach with a sample of Korean firms, this paper empirically investigates whether cash holding behaviors with the precautionary motive are different between Chaebol and non-Chaebol firms and they have changed before and after the financial crisis. We obtain the following empirical results. First, for non-Chaebol firms, the precautionary motive plays an important role in determining cash holdings throughout the sample period. In contrast, there is no empirical evidence supporting that Chaebol firms hold cash with the precautionary motive in the pre-crisis period: This motive becomes important only in the post-crisis period. Second Chaebol firms’ cash holdings with the precautionary motive are different from those of non-Chaebol firms in the pre-crisis period, but not in the post-crisis period. These imply that after experiencing financial crisis, Chaebol firms’ cash holding strategy has been changed substantially in a way to become more cautious in dealing with cash flow (CF) volatility.