Corporate Cash Holdings Research Articles

Does sovereign ESG shape corporate cash management in emerging markets?

Environmental, social, and governance aspects are becoming increasingly crucial factors for investors decisions. This paper examines the effect of sovereign environmental, social, and governance (SESG) practices on the cash-holding decisions of firms in the Gulf Cooperation Council (GCC) region. Utilizing firm-level data from 2010 to 2022, we find that improved SESG standards lead firms to reduce their cash holdings. The results are robust to sample selection, additional control variables, different estimation methods, and endogeneity concerns. Furthermore, we show a negative relationship between each SESG pillar (environmental, social, and governance) and corporate cash holdings. These findings offer valuable empirical implications for various stakeholders. Regulators can consider the potential impact of SESG standards on corporate financial health, potentially informing future regulations. Shareholders can leverage these findings to assess the potential financial benefits of strong SESG adherence by the companies in which they invest.

Corporate Cash Holdings and Investment Efficiency: Do Women Directors and Financial Crisis Matter?

This study investigates the relationship between corporate cash holdings and investment efficiency, with a focus on how COVID-19 and the presence of women directors may influence this relationship. Using data from Indonesian public companies during the COVID-19 period, comprising 2350 firm-year observations, we employ fixed-effect regression models with industry and year controls to test our hypotheses. Robustness and endogeneity tests are conducted to ensure the reliability of our findings. Our research reveals that companies with larger cash reserves tend to experience decreased investment efficiency during the COVID-19 crisis. Moreover, the negative impact of substantial cash reserves on investment efficiency is exacerbated by the presence of female directors on the board. However, our findings also suggest that female directors can mitigate the adverse effects of excessive cash reserves on a company’s investment efficiency, particularly during unforeseen economic challenges such as the pandemic.

The Determinants of Corporate Cash Holdings: Novel Evidence from Emerging Countries

The aim of this study is to investigate the determinants of corporate cash holdings in emerging countries. The sample comprises non-financial firms from six emerging countries, five of them commonly referred to as BRICS, plus Turkey. The dataset includes the data of 4,769 firms and covers a ten-year period from 2012 to 2021, resulting in a total of 47,690 firm-year observations. We run panel regressions, specifically fixed and random effects models, and conduct the J.A. Hausman [1] test to choose between the latter. We use several firm-specific variables as independent variables and the GDP growth rate and the inflation rate as country-specific control variables. The results reveal that firm size, leverage, capital expenditures, net working capital, operating cash flow, dividend payments, firm age, and research and development (R&D) expenditures are significant determinants of corporate cash holdings, with some differences among countries and/or industries in terms of the sign and the significance levels. The macroeconomic variables showed significant results in some countries and industries, yet they were not consistent enough to make general conclusions. This study provides new empirical evidence on the determinants of corporate cash holdings by using a large dataset from major emerging countries. Our findings have important implications for corporate managers and policymakers in designing cash holding and liquidity policies. A comprehensive understanding of the main determinants of corporate cash holdings enables managers to adopt appropriate financing and investing strategies in the long term, as well as better short-term financial policies.

The Impact of Recognition of Specialized and New Enterprises on Corporate Cash Holdings

The Impact of Recognition of Specialized and New Enterprises on Corporate Cash Holdings

Clan culture and corporate cash holdings: Are private companies supported by informal institutions?

In this paper, we empirically examine whether clan culture in China, an extant informal institution established 2000 years ago, affects corporate cash holdings. We use city-level pedigree density as a proxy for clan culture and find that private firms deeply entrenched in clan culture are less likely to hold cash. Our results hold after a series of robustness tests, including instrumental variable regression, alternative measures, and controlling for other influencing factors. Mechanism tests demonstrate that in places with strong clan culture, the cash holdings of private firms are less sensitive to the volatility of operating cash flow, and those non-state-owned enterprises are more likely to obtain alternative financing sources and less likely to carry out high-risk activities. Cross-sectional analyses show that the negative relationship between clan culture and corporate cash holdings is more prominent for firms located in areas with lower marketization or worse economic development. Furthermore, under the shock of the COVID-19 pandemic, firms with strong clan culture enjoy faster growth in trade credit rather than in interest-bearing liabilities. Overall, our findings provide evidence for the existence of sociocultural determinants of corporate cash holding decisions, as they demonstrate that clan culture secures corporate operations and thus reduces the precautionary motives for holding cash.

Geopolitical risk and cash holdings: evidence from an emerging economy

Purpose This study aims to examine the influence of geopolitical risk (GPR) on corporate cash holdings in an emerging market, India. It also investigates whether the effect of GPR on cash holdings varies across financially constrained and unconstrained firms, and across the different sectors. Design/methodology/approach This study uses the fixed-effect regression model to examine the effect of GPR on the corporate cash holdings of 2090 Indian firms from 2003 to 2021. To correct the potential endogeneity issue and ensure the robustness of the results, this study uses two-stage least squares regression, alternative cash holdings proxies, GPR measures and across the different periods (Global financial crisis and COVID-19). Findings The paper finds that GPR has a positive impact on the cash holdings of Indian firms. The authors also find that the positive relationship between GPR and cash holdings is consistent for financially constrained and unconstrained firms. Furthermore, the results also show that firms in the construction sector maintain higher cash reserves than other sectors. Originality/value To the best of the authors’ knowledge, this study is one of the first-ever studies which examines the effect of GPR on corporate cash holding for an emerging economy like India. The use of alternative measures of cash holding, GPR, and estimation methods make this study more robust.

Managers’ Overconfidence and Corporate Cash Holding in China: The Interaction Effect of Product Market Competition

Traditional corporate finance theory holds that people are entirely rational. However, psychological research shows that people are not wholly rational, which means that when people make decisions, their beliefs and preferences usually produce systematic biases manifested by behavioral characteristics such as overconfidence and loss avoidance. Therefore, managers' behaviors can be influenced to some extent by their psychological characteristics, implying that managers are not entirely rational. Thus, the main purpose of this study is to examine the relationship between managers' overconfidence and corporate cash holding decisions in Chinese listed companies. This study also investigated the influence of market product competition on the relationship between managers' overconfidence and corporate cash-holding decisions. This study used the data of the A-share listed companies in Shanghai and Shenzhen Stock Exchange from 2010-2022 as the sample and applied FEM and Generalized Method of Moments (GMM) for analyzing the data. The empirical results show that managers’ overconfidence have the positive correlation with cash holding. Therefore, managers tend to hold more cash for internal financing. However, this positive relationship can be alleviated by product market competition. This study will assist enterprises in developing a comprehensive and effective enterprise cash-holding plan to assist companies in making scientific cash-holding decisions.

New blood brings change: Exploring the link between rookie independent directors and corporate cash holdings

This study examines the relationship between rookie independent directors (RIDs) and corporate cash holdings, using a sample of Chinese A-share firms listed on the Shenzhen and Shanghai stock exchanges from 2006 to 2020. We further investigate the moderating effect of economic policy uncertainty on this association. Our results reveal that the presence of rookie independent directors is positively and significantly related to corporate cash holdings, and that economic policy uncertainty amplifies this relationship. Importantly, we also demonstrate that firms with rookie independent directors exhibit improved operating performance when making cash holding decisions in the Chinese context. The study also finds that firms with greater growth opportunities tend to prefer RIDs, who bring new perspectives essential for leveraging these opportunities, leading to enhanced cash holdings. To ensure the robustness of our findings, we employ a variety of advanced econometric techniques, including alternative proxies, tests for reverse causality, two-stage least squares, propensity score matching, and entropy balancing. Based on our results, we recommend that shareholders in China carefully consider the role of RIDs in their governance structure, as they effectively monitor firm management and contribute to the protection of shareholder interests.

Board gender diversity and corporate cash holdings: evidence from Australia

PurposeThis study aims to understand the dynamics of Australian boards by focusing on the influence of board gender diversity on firms' cash holdings, within the distinctive Australian “if not, why not” regulatory framework.Design/methodology/approachThe study uses ordinary least squares (OLS), fixed effects, generalized method of moments (GMM) and quasi-experimental methods such as difference-in-differences and propensity score matching to analyze the data.FindingsThere is a significantly negative relationship between board gender diversity and corporate cash holdings. This relationship is more pronounced when two or more female directors are on the board, supporting the critical mass theory. The results also reveal that the observed pattern can be attributed to the heightened monitoring intensity of female independent directors. Our quasi-experimental methods and pre-post analysis reveal that the observed effects are genuinely attributable to the increase in board gender diversity following regulatory reforms in Australia.Practical implicationsThe findings provide practical insights for companies and policymakers, emphasizing the tangible effects of gender diversity on a company's financial strategy and corporate cash holdings. This information is crucial for organizations aiming to make informed decisions regarding board compositions and governance structures.Originality/valueThis research offers fresh insights into an important relationship between gender diversity on boards and corporate financial strategies in the Australian context, enriching the global conversation on the significance of gender diversity in corporate leadership.

Do board networks matter for corporate cash holdings? Evidence from Australian firms

PurposeIn today’s interconnected world, social capital has emerged as a crucial business competence, drawing significant attention in recent literature. Using social network analysis, this study aims to investigate the impact of network centrality, established by a firm through its board members (i.e. boardroom networks), on corporate cash holdings.Design/methodology/approachThis study uses extensive panel data comprising 36,963 firm-year observations of firms listed on the Australian Securities Exchange, spanning a 22-year period (2001–2022). The study uses firm fixed-effect regression along with several alternative specifications and an instrumental variable approach to ensure the robustness of the results. Boardroom network centrality is quantified by five measures that capture different perspectives on networks as viable conduits for resource exchange and information flow: degree, two-step reach, closeness, eigenvector and betweenness.FindingsThe authors find evidence for the benefits of board networks. Firms with well-connected boards (central firms) are more likely to have smaller cash holdings. The findings also reveal distinct effects stemming from local and global properties of centrality, with local network measures playing a more pronounced role in shaping cash-holding decisions. Overall, the evidence reflects the ability of connected directors to enhance governance by limiting managerial discretion over cash reserves, thus reducing agency conflicts associated with cash holdings.Research limitations/implicationsThis study offers important insights for regulators, investors and practitioners, highlighting the potential for connected directors to effectively curtail managerial autonomy in deploying corporate cash holdings.Originality/valueThis study contributes to the ongoing discussion about the advantages and drawbacks of board networks, which constitute a vibrant and burgeoning area of research in the finance literature. It also complements scanty network-based studies on firm cash holdings. Importantly, this study extends prior work by providing robust evidence and a comprehensive analysis of the nuanced roles that board networks play in affecting the level of cash reserves.

Democracy and corporate cash holdings

ABSTRACT This paper investigates the effects of democracy on cash levels and the cash flow sensitivity of cash. With a sample of 298,263 firm-years across 41 countries, we document that democracy is negatively related to both corporate cash reserves and the cash flow sensitivity of cash.

Judicial reform and corporate cash holdings: Evidence from the establishment of circuit courts in China

This paper studies the effect of judicial reform on corporate cash holdings. Leveraging the establishment of Circuit Courts in China as an exogenous shock, we demonstrate that firms reduce cash holdings by 10.4% when under the jurisdiction of a court. The two primary channels through which the courts affect cash holdings are the availability of cheaper external financing and lower litigation uncertainty. This effect is more pronounced in financially constrained, private, and non-politically connected firms. Moreover, the equivalent perceived value of one additional CNY of cash held by firms declines by ￥0.091 due to lower precautionary motives. Further analysis shows that firms are more likely to pursue returns from alternative strategies by investing more, raising more capital, and buying back more shares. Collectively, these results suggest that judicial independence can have potentially important consequences for corporate cash management strategies.

Working Capital Management and Bank Mergers

This study investigates the consequences of bank mergers on non-financial borrowers’ working capital management. We find evidence that bank mergers increase corporate cash holdings and decrease receivables and investments in inventories by reducing bank credit availability. Bank mergers also decrease trade credit used through the reduction in bank credit availability. These findings are new contributions to the literature, suggesting that borrowing firms find it more difficult to manage working capital after bank mergers occur and that bank-dependent firms find it more difficult to manage working capital than their non-dependent counterparts after mergers.

Strengthening Corporate Cash Holdings and Investment Efficiency in the COVID-19 Pandemic: Some Empirical Evidence from Indonesia Emerging Markets

This study explores the connection between the amount of cash a company holds and its effectiveness in making investments, as well as the effect of the COVID-19 pandemic. The researchers analyzed a dataset consisting of 2721 observations from Indonesian publicly listed firms between 2013 and 2020, excluding the financial industry (SIC 6). They utilized multiple linear regression analysis to investigate how cash holding influences investment efficiency and how the COVID-19 pandemic affects this relationship. The research approach employed was quantitative. The results indicate that a higher cash holding has a negative impact on investment efficiency. The uncertainty caused by the COVID-19 outbreak has significantly affected corporate cash flows, impeding business activities. Additionally, robustness tests were conducted to address concerns regarding potential bias, and the results consistently aligned with the ordinary least squares (OLS) estimation. These findings are significant for investors, potential investors, and management, providing insights into the interplay among cash holding, investment efficiency, and the COVID-19 Pandemic.

Web‐based corporate social responsibility disclosure practices: A systematic literature review and research directions

AbstractThe current paper aims to conduct a comprehensive systematic review of the existing literature on web‐based Corporate Social Responsibility (CSR) disclosure practices and introduce suggestions for scholars in this research area. To achieve this main objective, a systematic literature review technique was adopted, consisting of the content analysis of 119 papers from different scientific databases utilizing specific inclusion and exclusion criteria. The findings of the study show that scholars have a strong and continuing interest in a variety of web‐based Corporate Social Responsibility disclosure (CSRD) aspects. Moreover, the investigation revealed that stakeholder, legitimacy, institutional, and Media‐Richness theories were more prevalent in the online CSRD literature. According to the investigation, the two key determinants of online CSRD are firm‐ and country‐level characteristics. The results further confirm that content analysis is the most common research methodology. Furthermore, the bulk of online CSRD studies are from Spain, Malaysia, and the United States. Moreover, findings indicate that samples of 91 up to 200 entities from listed companies from multiple industries and banks are the most common sample sizes and sectors. The review suggests that there is a gap in the use of mixed methodological studies. The current work has some limitations. In more detail, this study limited the search to reviewing 119 papers published in English peer‐reviewed journals that focused on web‐based CSR disclosure practices until February 2023, so there might be other academic studies accidentally missed. Future studies will require a mixed methodological approach, including quantitative (e.g., document analysis) and qualitative research methods (i.e., interviews and case studies), to examine, for example, the determinants (e.g., corporate governance mechanisms, cultural dimensions, ESG performance scores, and prosperity status like country governance, investment environment) and consequences (i.e., corporate cash holdings, credit ratings) of web‐based CSR disclosure in various sectors such as the banking sector, Universities, SMEs, and MNCs. The study reveals a strong interest in web‐based CSR aspects, emphasizing its significance in fostering societal relationships among businesses and their stakeholders. Furthermore, the study suggests that professional bodies, regulators, and policymakers should establish effective standards for CSRD on websites to ensure the quality, quantity, and type of information available. The originality of this paper derives from its being one of the first papers to date that analyses comprehensively and systematically all the articles related to internet CSR disclosure practices and brings out interesting directions for future research.

Liquidity Management in Pakistani Firms: An Empirical Analysis

This study investigates the factors affecting corporate cash holdings among Pakistani firms, utilizing a comprehensive analysis through multiple regression models, including OLS, fixed effects, and Fama-MacBeth methodologies. The results consistently demonstrate significant relationships between cash held by companies and various factors that are specific to firms such as market-to-book ratio, firm size, leverage, cash flow from operations, net-working capital, long-term investments, and cash flow variations. Key findings indicate that companies having greater growth potential maintain higher amount of cash, supporting the trade-off theory, while larger firms hold less cash, reflecting their better access to external financing. The negative association between borrowing and cash-holdings aligns with the pecking-order theory, and the positive association between capital expenditures and cash held by companies supports the precautionary motive. This study makes the contribution to the current research on corporate finance by providing evidence on the liquidity management practices of firms in a developing economy context, offering insights that are particularly relevant for policymakers, financial managers, and investors. The robustness of the results across different models underscores the reliability of the findings, enhancing the understanding of how various factors influence corporate cash holdings.

Corporate cash holding and firm’s performance in times of Ukraine war: a literature review and way forward

Corporate cash holding and firm’s performance in times of Ukraine war: a literature review and way forward

Sustainable investment conditions and corporate cash holdings in the MENA region: Market preparedness and Shari'ah-compliant funds

We employ firm-level data to investigate how sustainable investment conditions impact the cash-holding decisions of firms operating in the Middle East and North Africa. We introduce an innovative measure of sustainable investment conditions based on the degree of market preparedness to attract sustainable investments, and the percentage of managed assets eligible for sustainable investment. We further distinguish between conventional assets and Shariah-compliant managed assets. To account for potential confounding factors, we incorporate firm-specific and country-wide controls and perform endogeneity analysis. We find a robust inverse relationship between market preparedness and corporate cash holding. The impact of market preparedness depends on the firm's size and can manifest through both direct and indirect channels. However, the relationship between funds under management qualifying for sustainable investment and cash holdings is less straightforward. Our results underscore the influence of sustainability policies on firms' liquidity decision-making. These policies' effects are contingent on a broader institutional landscape. Our analysis implies that policies to promote market preparedness should be enhanced and that sustainable investment inflows into the region could be moderately increased by incorporating ESG criteria into the rules of Shari'ah-compliant funds.

Economic uncertainty and corporate cash holdings: Evidence from Taiwan

We utilize data from publicly listed firms and unlisted entities in Taiwan spanning the period from 1990 to 2020 to investigate the impact of global, Asia-Pacific, China, or Taiwan’s economic uncertainty on firm cash reserves within a small open economy. Our empirical findings indicate that, as economic uncertainty increases, Taiwanese firms demonstrate a tendency to increase their cash holdings, particularly those reliant on exports. Smaller and unlisted export-oriented firms encounter greater challenges in fund management, thereby leading to an augmentation in their cash reserves. Conversely, enterprises primarily focused on domestic sales exhibit a diminished response to uncertainty, with the exception of smaller listed companies that marginally raise their cash holdings. These results illuminate the influence of financing constraints, export reliance, and various uncertainties on decisions pertaining to cash holdings. Furthermore, the study underscores the dependence of Taiwanese firms on trade and emphasizes the impact of external economic uncertainty on their decision-making process.

The Moderating Role of Corporate Cash Holding on the Relationship between Earnings Management and Firm Value: Evidence from Egyptian Listed Firms

The Moderating Role of Corporate Cash Holding on the Relationship between Earnings Management and Firm Value: Evidence from Egyptian Listed Firms