Does Corporate Cash Holding Level Explain Mutual Fund Flow? Global Evidence

Abstract

This study investigates the influence of corporate cash holdings on the flow of open-end equity mutual funds. Building on the economic mechanisms that drive investors’ decisions when they construct their portfolio, the study analyses a comprehensive global dataset that includes 13,674 firms and 58,406 funds from 23 countries for the period from 2008 to 2017. Multiple regression models (pooled and fixed effect) are implemented to explore this relationship. The results show that there is a negative relationship between mutual fund flow and corporate cash holdings which indicates the significant role corporate cash holding policies have on the mutual fund industry. This article contributes to the literature by adding a new factor that can explain mutual fund investors’ behaviour. To the best of our knowledge, it is the first study to examine the relationship between corporate cash holdings and mutual fund flow, and one of the few studies to examine the influence of corporate-level decisions on the mutual fund industry. The results could help fund managers to better forecast future fund flow by considering corporate-level policies, namely cash holdings.