Determinants of Corporate Cash Holdings: Firm Level Evidence from Emerging Markets

Abstract

The objective of this chapter is to investigate the factors affecting corporate cash holdings in five emerging markets, namely Brazil, Indonesia, Mexico, Russia, and Turkey. The sample consists of 1991 firms listed on the major stock exchange of their countries and covers the period between 2009 and 2015. The model is estimated by Arellano–Bond dynamic generalized method of moments. Results show that firms which use higher leverage in their capital structure hold more cash. More profitable firms are shown to have higher levels of cash holdings. Another variable which has a positive effect on the level of cash holdings in any given period is the level of cash holdings in the previous period as shown by the positive and significant coefficient of the lagged dependent variable in the model. Liquidity and firm size have a negative and statistically significant impact on the level of corporate cash holdings. Firms with higher level of capital expenditures are also shown to hold less cash. Finally, growth opportunities do not have a significant impact on the level of cash holdings for the firms in the emerging markets analyzed.