Cash Holdings Research Articles

Purpose In this study, we examine whether firms holding excessive cash reserves exhibit different stock price crash risk, using the Korean sample from 2004 to 2023. We find a significantly positive association between corporate excessive cash holdings and stock price crash risk. This result is salient for firms with low majority ownership, those affiliated with the chaebol groups, and when external monitoring by institutional or foreign investors is weak. Thus, corporate excessive cash appears to be related to managers’ bad news hoarding, as it worsens agency problems and leads to a higher crash risk. Consistently, firms that likely have weak precautionary motives for holding excessive cash, such as those paying no cash dividends, having poor investment opportunities, reporting net loss, or spending zero on R&D, exhibit a stronger positive relationship between their excess cash and crash risk.

ABSTRACT This paper investigates the effect of biodiversity risk on corporate credit risk. Using textual‐based measures of biodiversity risk, we find that firms exposed to biodiversity transition risk exhibit shorter distances‐to‐default, implying greater credit risk, compared to non‐exposed firms. In contrast, we find no significant relationship between physical biodiversity risk and distance‐to‐default. We attribute the observed link between transition risk and credit risk to a risk‐perception channel: Transition risk raises investors' perception of firm exposure, which depresses market valuations and weakens firms' capacity to meet debt obligations. To mitigate transition biodiversity risk, we propose two adapting strategies: (i) increasing cash holdings and (ii) promoting product innovation. Overall, our findings indicate that transition biodiversity risk lowers firms' creditworthiness, but strategic adaptation can enhance firms' resilience to its unfavourable effects.

Purpose This study investigates how environmental, social and governance (ESG) assurance impacts a firm's cash holdings in the unique African context. Design/methodology/approach Drawing on the spirit of the staggered difference-in-differences (DiD) framework, this study uses a panel data set based on a sample of 9,646 listed firms in 18 countries in Africa to exploit the temporal and cross-sectional variation in the impact of ESG assurance adoption on cash holdings between treated and untreated firms. The period of the sample covers 15 years, from 2009 to 2023. This study also mitigates potential endogeneity problems using a battery of tests. Findings Based on the stakeholder-agency and resource dependence theories, we find that ESG assurance reduces cash holdings. Specifically, this impact is more evident among firms with greater information asymmetry. Furthermore, our results suggest that following ESG assurance, firms reduce cash holdings and reallocate their resource toward the improvement of green investment and ESG performance. Research limitations/implications This study is important in projecting the need for transparency in sustainability disclosure. This is a key factor in both regional and global context due to international ownership dynamics, capital market complexities, supply chain linkages, and the impact of accounting on African social and economic development. This study assists managers, capital providers, and policymakers in leveraging ESG assurance as a mechanism to manage different interests among stakeholders and a consideration of resource allocation, and calls for investment in their capacity building to drive sustainability transparency. Originality/value This study differs from prior research in three ways. First, we uncover the role of ESG assurance in addressing the complexity of cash holding determination, particularly regarding the trade-off between agency problems and the risk of investment opportunity loss. Second, amid the scarce discussion of sustainability governance and cash holdings, we offer incremental knowledge of proactive sustainability governance to shape the cash holdings strategy. Third, we establish an overarching framework to incorporate a big picture of how firms leverage ESG assurance as a reflection of sustainability governance to address the challenges regarding external stakeholder relationships and critical resource access.

This study aims to examine and analyze the influence of debt maturity and cash holding on dividend policy, the effect of debt maturity and cash holdings on company value, and the effect of debt maturity and cash holdings on company value through dividend policies in banking sub-sector companies listed on the Indonesia Stock Exchange for the 2020-2023 period. The sampling technique uses the purposive sampling method. Secondary data was obtained from the annual financial statements. The data analysis method uses path analysis with two structural equations to test the direct and indirect influence of independent variables on dependent variables through intervening variables. The results of the structural equation 1 study show that debt maturity has no effect on dividend policy, and cash holdings have an effect on dividend policy. The results of structural equation 2 show that debt maturity affects the value of the company and cash holdings have no effect on the value of the company. The results of the testing of intervening variables show that dividend policy can mediate debt maturity to company value and dividend policy can mediate cash holdings to company value. The predictive ability of the two variables on the dividend policy was 13.6% and the remaining 12.6% was influenced by other variables outside the research model and the predictability of the three variables on the company's value was 15.7% and the remaining 14.7% was influenced by other variables outside the research model.

Judicial coordination, cash holdings, and investment efficiency of real estate enterprises

The effects of decarbonization on corporate cash holdings

Global value chain position and corporate cash holdings

Purpose This study investigates the influence of geopolitical risk on firm investment inefficiency and explore the moderating role of corporate governance on the above relationship using a dataset of 43,182 observations from Indian-listed firms between 2002 and 2023. Design/methodology/approach The study employs pooled ordinary least squares regression models with firm and year fixed effects. Robustness tests include entropy balancing and alternative proxies, quantile regression and endogeneity checks via two-stage least squares and Oster (2019) omitted variables test. Findings The results shows that heightened geopolitical risk significantly worsens investment inefficiency, increasing both overinvestment and underinvestment, while strong corporate governance mitigates these effects. Cross-sectional analysis shows the impact is more pronounced in firms with lower cash holdings, more irreversible investments, fewer financial constraints, those operating in industries with higher exposure to geopolitical risk and those in competitive industries. Practical implications The study highlights the positive impact of geopolitical risk on investment inefficiency, emphasizing the need for financial support mechanisms such as subsidies and credit facilities. Firms should adopt proactive investment strategies while strengthening corporate governance, disclosure and transparency to reduce information asymmetry. Investors should prioritize firms with strong governance, and regulators must promote competition-friendly policies to ensure efficient capital allocation under high geopolitical risk. Originality/value This study advances corporate finance literature by providing new evidence regarding the impact of geopolitical risk on investment inefficiency. It is among the first studies to show that strong corporate governance mitigates adverse effects of geopolitical risk. Additionally, it examines how cash holdings, irreversible investments, financial constraints and market competition shape the geopolitical risk–investment inefficiency relationship.

ABSTRACT This study examines active liquidity management by Indian open-ended equity mutual funds. We find that fund managers respond to inflows by increasing cash holdings, which are subsequently deployed to acquire less-liquid stocks at favorable valuations. Funds with less liquid portfolios tend to maintain larger cash reserves to manage flows. Funds that make active liquidity choices yield statistically and economically significant gross and net returns. The performance differences between funds with varying activeness in altering liquidity highlight the importance of active liquidity management in markets with substantial cross-sectional liquidity differences, such as India.

Purpose Per the myopic marketing management literature, the decrease in marketing investment generates an increase in profit in the short term; however, it fosters a negative effect on firm value in the long term. This association is clear, but it ignores managers’ need to manage cash holding and establish strategic value creation (vs strategic value appropriation) emphasis. Drawing on Peck Order Theory and Resource Based View, the purpose of this study/paper is to analyze the moderating effects of cash holding and strategic value creation. Design/methodology/approach This empirical study uses data from 825 companies over 15 years (3,824 firm-year observations). This study merged three databases, annual accounting data fetched (Compustat), monthly stock prices with earnings-adjusted values taken (University of Chicago’s Center for Research in Security Prices - CRSP) and portfolio data for calculating abnormal (monthly) stock returns (Kenneth French Data Library). Findings The results show that the long-term stock performance when there is myopic marketing management, is lower than when there is no myopic marketing management, stock performance is negative in the short- and long-term for myopic companies with a value creation emphasis and this negative effect becomes positive, in the short and long term, when there is a high volume of cash holding (moderator). Originality/value This study demonstrates that prioritizing innovation investments can generate better influences on stock prices when companies do not engage in myopic management practices when managers need to decide resource allocations between value creation and value appropriation emphases. In other words, managers must consider the cash holding volume and the signs of financial flexibility to react to marketing reduction conditions.

Societal happiness and corporate cash holdings: The contingency role of climate policies.

This paper focuses on the trend of household allocation of financial assets in India in the past 5 years, between 2019 and 2024. Conservative investment options that traditionally include bank deposits and cash holdings are slowly being replaced by diversified financial options like stocks, mutual funds, and pension plans within Indian households. This research is based on secondary sources of data, including publications of the Reserve Bank of India (RBI) and the Ministry of Statistics and Programme Implementation (MoSPI), emphasizing household asset distribution among various financial instruments. The analysis shows that the portion of bank deposits is decreasing, and the portion of market-linked investments is increasing significantly, which indicates a slow change in the risk appetite and investment pattern. The data shows little fluctuation in insurance and provident/pension funds, suggesting their continued importance as stable, long-term savings options. The paper also points to the increasing role of financial literacy, and the rise of online investments as a factor in household decision-making. Comparative and trend analysis deliver significant information about the changing financial environment and make a recommendation on how to improve financial education, promote the construction of balanced portfolios, and introduce a more inclusive online audience. The results are of practical value to policymakers, financial advisors, and institutions that seek to increase financial resilience and the involvement of households in formal financial markets.

Firms often respond to information about investor demand, learned when underwriters build the book to place corporate bonds, by “upsizing” the offering amount. We examine the factors that predict two measures of realized credit supply (oversubscription and yield tightening) and show that the unexpected component of credit supply can explain firms’ upsizing decisions. Because firms’ fundamentals and need for capital are unchanged in the few hours of bookbuilding, upsizing provides a bond-level measure that can be used to study the impact of credit supply on postissuance leverage and investment. Firms use the sizeable additional proceeds to reduce bank debt and increase cash holdings; net increases in leverage are temporary for riskier issuers. Our evidence does not support concerns of overinvestment in periods of accommodative credit markets. This paper was accepted by Bo Becker, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.00153 .

This study examines whether political instability influences corporate ESG (Environmental, Social, and Governance) performance by analyzing the effect of country-level political risk on firms' ESG outcomes. We further investigate how cash reserves, national cultural dimensions, and climate change adaptation capabilities moderate this relationship. Utilizing panel data from Refinitiv and the International Country Risk Guide (ICRG) across 31 countries (2002–2018) and employing fixed-effects regression as our primary methodology, we document three key findings: First, heightened political risk significantly reduces firms' ESG performance, a result robust to GMM estimation and instrumental variable techniques addressing endogeneity. Second, the adverse effect is attenuated in firms with limited cash holdings and in nations with advanced climate adaptation strategies. Third, national culture exhibits heterogeneous moderating effects. Our work extends the ESG literature by introducing political risk, measured through ICRG’s comprehensive framework, as a novel determinant in cross-national contexts, while offering actionable insights for policymakers and corporate stakeholders navigating politically volatile environments.

Purpose In recent years, a notable phenomenon has emerged among Chinese listed companies: the simultaneous persistence of greater cash holdings and interest-bearing debts (SP-GCHID). Instead of directly operating with their existing cash reserves, these companies tend to borrow additional debt, which incurs higher interest costs. This study aims to explore the implications of SP-GCHID and its impact on auditor risk response behavior. Design/methodology/approach Using a sample of Chinese listed companies, this study explores whether such anomaly is an important indicator of latent risks for companies, and whether auditors have effectively responded to these risks. Findings The findings reveal that SP-GCHID firms have higher agency and misstatement risks. Furthermore, auditors are inclined to increase audit inputs, charge higher audit fees and issue more modified audit opinions for SP-GCHID firms. Originality/value Given the increasing prevalence of credit defaults and financial fraud among SP-GCHID firms, the assessment of risks and hidden dangers associated with SP-GCHID firms is of great concern. This study offers an additional perspective by examining the consequences of SP-GCHID and provides novel insights into auditors’ risk response behaviors. The conclusion also helps regulators and investors better understand corporate cash policies.

Purpose – The purpose of this research is to investigate how cash holdings in mining businesses listed on the Indonesia Stock Exchange (IDX) is influenced by cash flow and net working capital. Design/Methodology/Approach – A quantitative approach was adopted using explanatory research methods. The data consist of financial statements from mining sector companies covering the period 2020–2024. Hypothesis testing and data analysis were conducted using EViews 12 software. Findings – Research results show that cash flow and net working capital have a significant influence on cash holding. Therefore, an increase in both of these variables can increase the company's cash holding. Research limitations/Implications – Company management should place greater emphasis on managing cash flow and net working capital effectively toenhance financial stability and mitigate liquidity risks. The findings of this research are expected to serve as a valuable reference for financial decisionmaking among practitioners and academics within the mining industry. Keywords: Cash Flow, Cash Holding, Liquidity, Mining Companies, Net Working Capital

Abstract We explore the factor structure in delta-hedged equity option returns. A sparse latent factor model generates a correlation of 0.90 or higher between average and predicted option returns. A comparable performance is achieved with a characteristic-based model containing four factors: the equally weighted option portfolio, a factor based on the difference between historical and implied volatilities, a factor based on the ratio of corporate cash holdings to the total value of the firm’s assets, and a factor based on volatility of volatility. Traditional stock return factors cannot explain these option factors.

Abstract The adoption of digital technologies has emerged as a transformative force in shaping corporate financial strategies, particularly in optimizing cash reserve management. This study examines the impact of digital technology adoption on corporate cash holdings, with a particular emphasis on the moderating role of financing constraints. Leveraging a novel digitalization index constructed from corporate annual reports using advanced natural language processing techniques and drawing on data from Chinese publicly listed firms between 2012 and 2021, the findings demonstrate that digital technology adoption significantly reduces cash holdings, with this effect being more pronounced in non-high-tech firms compared to their high-tech counterparts. Financing constraints are shown to moderate this relationship, underscoring their critical role in shaping corporate liquidity strategies. These results are consistent with agency theory, which advocates minimizing the costs of excess cash, and financial distress theory, which emphasizes the protective role of liquidity buffers in mitigating risks. Beyond its theoretical contributions, the research offers practical implications: managers can recalibrate liquidity strategies in line with digital transformation, while policymakers can design interventions that ease financing constraints to foster sustainable economic growth.

ABSTRACT Our study demonstrates that climate policy uncertainty (CPU) significantly and negatively affects informal financing, particularly trade credit. We explore the mechanisms behind this negative relationship, showing that CPU may reduce trade credit by increasing corporate cash holdings, creating financial constraints, and complicating inventory management. Furthermore, we find that, compared to state-owned firms, private corporations have greater access to the bond market, more opportunities for bank loans, and a weaker negative relationship between CPU and trade credit. To deepen our understanding of these dynamics, we conduct a series of heterogeneity analyses, considering factors such as green patents, regional environmental expenditures, corporate climate risk disclosures, and the impact of supplier or customer concentration, firm size, and industry-specific characteristics. Our findings offer valuable implications for both governments and corporations when considering the influence of CPU on trade credit.

This study aims to examine and analyze the influence of independent commissioners, cash management, using cash flow and capital expenditure as measures, and net working capital on cash holdings. The sample was selected using a purposive sampling method based on specific criteria. The sample used in this study consists of 62 property and real estate companies listed on the Indonesia Stock Exchange (IDX) from 2021 to 2023. The research method used is a quantitative approach and multiple regression analysis. Data collection techniques were conducted using secondary data from financial statements and annual reports of companies listed on the Indonesia Stock Exchange (IDX). The results of this study indicate that cash flow has a positive effect on cash holdings. Meanwhile, independent commissioners, capital expenditure, and net working capital have a negative effect on cash holdings.