Abstract
With corporate cash holdings on the rise, stakeholders need to know, among other things, what informs the companies’ cash holding policies and whether there are any benefits to be derived from piling up these cash reserves. Studies conducted in developed countries have identified the following as determinants of corporate cash holdings: firm size, growth opportunities, liquid asset substitutes, capital expenditure, leverage, dividend payments, cash flows and cash flow volatility. Few studies have focused on what drives firms’ cash holdings behavior in emerging economies. This study, the first of its kind, investigated the determinants of corporate cash holdings in the South African retail industry. The paper used panel data analysis to test the relationships between cash holdings level and the identified determinant factors. The authors found evidence that liquid asset substitutes, capital expenditure, dividend payments and cash flow volatility significantly influence the cash holdings levels of retail firms listed on the Johannesburg Stock Exchange.
Highlights
There has been a notable increase in corporate cash holdings levels
This study investigated what determines the levels of cash holdings by retail firms listed on the Johannesburg Stock Exchange (JSE)
The positive relationship between dividend payments and cash holdings might signify the presence of the agency con- analysis, because the measure of cash flow volaflict, as managers seek to manage stock prices tility commonly used in the literature gave a monotonous figure per company our study found that cash flow volatility for the study period and this is not compatible motivates firms to hold more cash as a precau- with panel data analysis
Summary
There has been a notable increase in corporate cash holdings levels. For example, recent reports showed that Apple and GM Motors were each holding more cash than the US treasury. This study investigated what determines the levels of cash holdings by retail firms listed on the Johannesburg Stock Exchange (JSE). Opler, Pinkowitz, Stulz and Williamson (1999) found that small firms and those with good growth opportunities and volatile cash flows have high cash holdings. Much of these studies, have focused on Western countries with a few targeting on Asia (Kim, Kim and Woods, 2011; Islam, 2012; Horioka and Terada, 2013; Uyar and Kuzey, 2013; Fischer, Marsh, and Brown, 2014).
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