The determinants of corporate cash holdings: Does country s legal regime matter Evidence from BRIC and Turkey

Abstract

Purpose - This study aims to fill the gap for BRIC countries and Turkey by looking into the determinants of cash holding across different firm sizes and industries with a perspective on country’s legal regime. Methodology- The sample contains 5.840 firm-year observations across these countries for the period 2005–2014. Capital expenditure, growth opportunities, liquid asset substitutions, leverage, profitability, firm size and GDP per capita- as a measure of the economic development- have been taken to explore the determinants of corporate cash holdings. In order to see whether country’s legal regime matter; the shareholder protection has also been discussed as a determinant of corporate cash holding. Several models have been implemented for each of the cash holding measures, and all of them are estimated by panel data regressions with fixed effects. Findings- The results gave strong evidence that potential investment and growth opportunities, liquid asset substitution and firm size significantly affect the cash holdings decisions of non-financial firms and that are in conformity with the existing literature on the determinants of corporate cash holdings. Besides this, findings provide support for the notion that related firms is under financial constraint and tend to hold more cash as a result of the precautionary motive for cash. Conclusion- These multicounty results, together with the view of common and civil-law differentiation, suggest that country characteristics strongly influence the determinants of cash holding. Countries which have poor corporate governance hold cash at higher levels compared to countries that have good corporate governance.