Level Of Cash Holdings Research Articles

Non-arm's-length transactions, offshore financial centres, transfer pricing agreements and corporate cash holdings: Evidence from U.S. multinational corporations

This paper examines the association between non-arm's-length transactions, the existence of offshore financial centres, the existence of a transfer pricing agreement and corporate cash holdings for a large sample of U.S. multinational corporations over the 2006–2020 period. This study provides evidence that the existence of non-arm's-length transactions and of offshore financial centres increased the level of corporate cash holdings. In contrast, the existence of a transfer pricing agreement reduces the level of firm cash holdings. Overall, these results suggest that development of transfer pricing agreements with taxing authorities reduces multinational corporations' incentives and capacity to shift profits from higher- to lower-tax countries. These results remain robust to alternative specifications of cash holdings and endogeneity tests.

Bank Branches Expansion and Corporate Cash Holdings: Evidence from the Distribution of Bank Branches in China

ABSTRACT Using the geographical distribution data of banks’ physical branches at micro-firm level, this paper investigates the impact of bank branches expansion on corporate cash holdings. We find that the more the number of bank branches around firms, the less corporate cash holdings, implying that bank branches expansion helps reduce the level of corporate cash holdings. And the negative effect is more prominent in small-sized firms and non-SOEs. Further mechanism tests show that bank branches expansion reduces cash holdings mainly through intensified bank competition and shortening the geographical distance between bank and firm. We also find that bank branches expansion speeds up the dynamic adjustment to the target level of corporate cash holdings and mitigates agency problems. Our study highlights the crucial role played by the geographical distribution of bank branches in shaping corporate financial decisions and provides important policy implications for banking sector reform.

Share repurchase and cash holdings: Evidence from China

This paper empirically examines the impact of share repurchase on corporate cash holding decisions by selecting A sample of stock repurchase of A-share listed companies in Shanghai and Shenzhen from 2007 to 2020. The results show that share repurchase can reduce the level of corporate cash holdings, and there is heterogeneity in financing constraints, dividend distribution and investment opportunities.

Does corporate sustainability performance matter for cash holdings? International evidence

PurposeWe examine the impact of corporate sustainability performance (CSP) on corporate cash holdings, focusing on the moderating impacts of industry’s concentration, financial constraints, and institutional environments.Design/methodology/approachThe empirical analysis is conducted on a sample of 31 countries from 2002 to 2018. We use the pooled OLS regressions controlling for fixed effects. We further address endogeneity issues using an instrumental variable approach, the Difference-in-Differences regression based on an exogenous shock, and the propensity score matching.FindingsWe find that firms with superior CSP hold more cash. This result is valid after a series of tests for robustness and endogeneity issues, suggesting a causal effect of CSP on corporate cash holdings. In the cross section, the positive impact of CSP on cash holdings is more pronounced for firms operating in highly concentrated industries, but attenuated for firms with financial constraints and for those operating in countries with better institutional environments. We further show that CSP affects cash holdings through the channel of financial distress risk.Practical implicationsIn making investment decisions, investors should not only examine corporate financial performance and sustainability profile, but also understand the related cash holding levels and financial distress costs. Corporate managers making decisions on levels of cash holdings should pay more attention to their sustainability behavior, especially for firms operating in concentrated industries and/or facing financial constraints. Governments and authorities can apply regulations to encourage firms to engage more in sustainable activities, as well as establish good institutional environments in the country.Originality/valueUsing a comprehensive international dataset, our paper contributes to two strands of literature: the economic impact of CSP and the driver of cash holdings. We further focus on the moderating role of industry concentration and firms’ financial constraints. Our international sample also allows us to exploit the effect of country-level informal institutions.

Does digital finance development affect corporate cash holdings? Evidence from China

ABSTRACT This paper examines how the level of development of digital finance affects corporate cash holdings. By utilising the Digital Finance Inclusive Finance Index compiled by the Internet Finance Research Center of Peking University and data from China's listed companies, this paper finds that the development level of digital finance where a company is located is negatively correlated with corporate cash holdings. Furthermore, the negative effect of digital finance is more pronounced for non-state-owned enterprises and companies in the early stages of their life cycles. Additional tests show that digital finance can reduce a corporation's financial constraints and debt costs, and the coverage breadth and usage depth of digital finance have also significantly reduced the level of cash holdings for enterprises. Our findings provide insights for understanding the role of digital finance in firm behaviour in emerging economies.

Trust and SME short-term financial policy. European evidence

PurposeDoes societal trust influence short-term financial management? Recent papers uncover the importance of societal trust for financial management in specific countries and large firms. Our paper aims to provide a comprehensive analysis of the impact of societal trust on short-term financial policies of SMEs, namely working capital management and cash holdings.Design/methodology/approachWe rely on a sample of 14,711 privately owned medium-sized manufacturing firms from 26 European countries with a sample period between 2014 and 2020. For estimation, we use pooled OLS and hierarchical linear models and control for several firm-specific and country-specific known determinants of short-term financial management. Moreover, our results are robust to the specific measurement of trust, financial constraints, and corruption.FindingsWe show a positive relationship between trust and working capital requirements investment and a negative relationship between trust and the level of cash holdings. Moreover, we show that trust attenuates the negative impact of being a financially constrained firm and the positive impact of national perceptions of corruption. Finally, in higher trustworthy environments, firms operate with relatively higher inventories and relatively lower trade credit granted and obtained.Research limitations/implicationsResults suggest that policies supporting societal trust may also foster business development and that when dealing with clients or suppliers from different trustworthy environments, firms may have to adapt their business models to incorporate trust differences between business environments.Originality/valueFirstly, the comprehensive analysis of the impact of trust on working capital management and cash holdings while controlling for different firm-level and country-level known determinants of short-term financial management. Secondly, it addresses a European sample of unquoted, medium-sized firms. Thirdly, it studies the combined effect of trust and financial constraints and trust and corruption.

DETERMINANTS OF CASH HOLDINGS OF CONSUMER NON-CYCLICALS FIRM LISTED IN INDONESIA STOCK EXCHANGE

Cash is one of the most important asset owned by a firm. Cash functions to finance all firm’s operating activities. Without cash firm’s operational activities can’t run smoothly. Firms hold a certain amount of cash, this is called cash holdings. The level of cash holdings owned by a firm surely need to be managed well. This research aimed to empirically prove the effect of financial leverage, profitability, capital expenditure, firm size, and growth opportunity on cash holdings. The populations used in this research was 105 consumer non-cyclicals firms that was listed on Indonesia Stock Exchange (IDX) during the 2020-2022 period. The sampling method used was the purposive sampling method. The sample used in this research was 50 consumer non-cyclicals firms that was listed in IDX during the 2020-2022 period. The data used for this research was secondary data. The hyphothesis testing method used was multiple linear regression method. The statistical tool used for data processing in this research was Eviews version 12.0. The model that was most suited for this research was the Random Effect Model (REM). The results of this research showed that financial leverage, capital expenditure, and growth opportunity had a negative effect on cash holdings, profitability had a positive effect on cash holdings, while firm size didn’t have any effect on cash holdings. The results of this research implied that managers and investors should consider the level of financial leverage, profitability, and capital expenditure in assesing cash holdings to make a decision.

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

Cash holdings decision‐making in Spanish family firms: Exploring the impact of heterogeneity

AbstractCash holding decision‐making is one of the main corporate challenges for family firms (FFs), with significant consequences for their growth and survival. It is closely connected to key financial decisions such as financing, investments, and dividends. The motivations behind adjusting cash holdings vary, encompassing precautionary, risk avoidance, opportunity cost considerations, and the spending hypothesis. In our study, we aim to integrate specific motivations for cash holding decisions that stem from the influence of family dynamics within these businesses since FFs have unique characteristics, which affect their financial choices. Therefore, we analyze the impact of family involvement in management and the generational stage of FFs on their level of cash holdings. The results of the partial least squares–structural equation modeling, which was estimated on a sample of 7269 unlisted Spanish FFs, show that the higher the level of family involvement in management, as well as the higher the generational stage, the higher the level of cash holdings, with this having a positive effect on the firm's performance. In addition, we find that the positive relationship between family involvement in management and the level of cash holdings is strengthened by family ownership and weakened by family governance. These findings are relevant for a better understanding of the complexity of cash holding decision‐making in FFs and have practical implications not only for the FFs themselves but also for the entities related to them due to the important links between a firm's liquidity and its risk of default and performance.

The Level of Cash Holdings and Financial Performance: Evidence from Firms Listed on Borsa Istanbul 50 Index

Cash is of great importance to firms operating in emerging economies. Cash, one of the most important assets, creates shareholder value when rationally used by firm management. This paper aims to reveal the relationship between financial performance and cash holdings by using a sample that consists of non-financial firms listed in Borsa Istanbul 50 index. The result of empirical analysis provides strong evidence that financial performance is positively influenced by cash holdings. Further, firm size, capital intensity ratio and current ratio did not significantly influence the financial performance of sample firms, while financial performance of sample firms is significantly influenced sales growth and financial leverage. Overall, the research findings indicate that firm-specific factors are important factors that affect the relationship between financial performance and cash holdings. The present paper provides important insights for creditors, shareholders and firm management on the impacts of cash holding levels on financial performance.

When acquirers are short on cash flow in M&A deals

Studies on corporate takeovers are voluminous but typically assume that acquirers are not financially constrained. We show that acquirers' free cash flow (FCF) levels have significant impacts on their takeover activities and consequences. Acquirers with low FCF, despite their high levels of cash holdings, tend to pay in stocks rather than cash. The targets acquired by low-FCF acquirers are of inferior quality relative to those obtained by high-FCF acquirers. After acquisition, low-FCF acquirers seriously underperform their peers, but this underperformance does not exist in high-FCF acquirers. Further, the financial leverage of low-FCF acquirers increases sharply following acquisitions, and a significant number of them become bankrupt or are acquired by other firms. Our evidence suggests the importance of acquirer's financial position to sustain the normal operation of the combined entity following the deals. Firms with financial constraints, therefore, should be conservative in advancing takeovers.

Effect of the Brazilian corporate sustainability index on cash holdings and the moderating role of Covid‐19

AbstractThis study investigates the effect of the Brazilian Corporate Sustainability Index (ISE) on cash holdings and the moderating role of Covid‐19. Our sample comprises 213 non‐financial publicly listed firms from Brazil with 1072 firm‐year observations available on Refinitiv Eikon database from 2015 to 2022. Our overall findings show a positive association between ISE and cash holdings for the entire period analyzed. However, we find that ISE companies retained less cash in the pandemic period. Furthermore, external financial constraint is a channel through which ISE companies tend to lower their levels of cash holdings during the Covid‐19 outbreak. Our main results are robust to alternative measures of cash holdings. Therefore, we contribute to the corporate financial, sustainability, and Covid‐19 literature by providing the first empirical evidence of the dynamic nature of the relationship between ISE and cash holdings during external shocks and further comprehension to investors that sustainable practices reflected on the financial resource strategies are essential information during crises.

The downside of blockholder exit threats: Increasing excess cash holdings

AbstractThis study examines the impact of blockholder exit threats on excess cash holdings following China's split‐share structural reform. Previous studies have confirmed the governance role of blockholder exit threats, but their effectiveness is limited to companies with greater private benefits. Using a sample of 2340 firm‐year observations of Chinese listed firms between 2002 and 2009, we find that the exit threat of blockholders increases the level of excess cash holdings. These results suggest that blockholders view exit threats as a means of collaborating with controlling shareholders to boost excess cash holdings and diversify corporate resources for private benefits. The collusion effect is more pronounced in firms with poorer investor protections, lower shareholding concentrations, and more severe agency conflicts. Additionally, in terms of economic consequences, blockholder exit threats decrease buy‐and‐hold abnormal returns and increase the occurrence of corporate scandals. Overall, this study provides empirical evidence of collusion among large shareholders, which harms small shareholders' interests from the perspective of excess cash holdings.

The effects of banking market structure on corporate cash holdings and the value of cash

We investigate the impact of the local banking market structure on the level of corporate cash holdings and the value of cash. We find that, in more concentrated banking markets, firms increase their cash holdings by issuing more equity. The marginal value of $1 cash increases by 10 cents with a one-standard-deviation increase in bank concentration. The positive relationship between bank concentration and value of cash is robust to a rich set of tests such as for firms having access to bond markets or firms using syndicated loans and is more prominent for more financially constrained firms. We also explore the mechanism, and our results suggest that in more concentrated banking markets firms demand more cash to shield against default risk.

Ownership structure and corporate cash holdings in Jordan: the role of government ownership

ABSTRACT Using a dataset of 107 listed firms in Jordan from 2009 to 2018, we employed the generalized method of moments (GMM) to examine the effect of ownership structure on the level of corporate cash holdings. We found that higher government ownership is associated with higher cash holdings. On the other hand, different forms of ownership, namely block holding and individual and foreign ownership, were found to be insignificant. We further examined why firms in Jordan hold cash, concluding that when the level of government ownership rises, firms do not employ cash reserves for investments nor for dividend payments, which in light of governmental political purposes could be a clear indicator of agency problems.

ESG reputation risks, cash holdings, and payout policies

This paper examines the financial implications of environmental, social, and governance (ESG) reputational risks and evaluates if excessive cash holdings and corporate payout policies can play influential roles in firm valuation by investors. We find empirical evidence suggesting that when ESG reputational risks intensify, investors particularly penalize the stock price of firms with excessive or high cash levels. This effect is particularly pronounced when managers do not employ any form of corporate payout policies. It is observed that cash distributions in the form of dividend payments or share repurchases may help mitigate shareholders’ antipathy to excessive and high cash holdings. Further analysis reveals that investors may view refinancing risks as a positive moderating factor for high levels of cash holdings during negative ESG shocks.

Cash-Driven Resilience Capabilities and Cash Holdings of Manufacturing Companies During the Covid-19 Pandemic

Saving cash is one of the company’s precautionary motives. The Covid-19 pandemic has increased liquidity risk and more companies are experiencing financial difficulties. The cash holdings during the Covid-19 pandemic shows the company's resilience. This research aims to determine the state of cash-driven resilience and cash holdings of companies in Indonesia which are influenced by return on assets, profit margin, and productivity of assets, liquidity, leverage and firm size. The research was to observe the changes in cash-driven resilience, driven by changes in world conditions before the pandemic in 2018 and 2019, and during the pandemic in 2020 and 2021. This research uses purposive sampling technique on manufacturing companies on the Indonesia Stock Exchange. Hypotheses are analyzed using data regression models in Eviews 12. The research results are intended to help management determine the company's resilience and optimal level of cash holdings. This research found that there was no difference in CDR before and during Covid-19. There are differences between PA and LIQ variables on CDR but not on ROA, PM and LEV. The study also shows that there is no influence of ROA, PM, and LEV on CASH. Meanwhile PA, LIQ, and SIZE have positive effects on CASH. Keywords: Cash-Driven Resilience, Covid-19, Cash Holdings, and Financial Performance

Emissions trading scheme participation and firms’ cash holdings

This study investigates the effect of participating in an emissions trading scheme (ETS) on firms' future cash holdings. Using global firm-level data from different continents, our findings show that, notwithstanding the benefits of ETS, its membership has a significant impact on firms' cash holding. Additionally, we document that bankruptcy risk, firm growth potential, corporation tax, and financial constraints mitigate the impact of ETS on corporate cash holdings. Furthermore, we find that the country of operations, continent, and legal origin of the domiciled firm influence the association between ETS and firm cash holdings level. The results are robust to difference in differences (DiD) estimation and a variety of econometric specifications.

Accounting information quality and cash holdings—Moderating effects based on state ownerships and local appointments

PurposeThe purpose of this study is to explore the continuity and stability of the impact of accounting information quality on cash holdings, and the moderating effect of this relationship on state ownerships and local appointments.Design/methodology/approachBased on China's companies from 2011 to 2019, the authors divided cross-section and panel samples, adopted a linear and classification model and performed grouping regression.FindingsThe authors find that: first, the quality of corporate accounting information can significantly improve the level of cash holding, giving play to the strategic value effect of cash holding. But that boost is based on economies being able to solve agency problems. Second, the reduction of earnings management and the improvement of accounting information quality of NSOEs improve the level of cash holdings, while SOEs are on the contrary. Third, local appointments can play to the emotional strengths of their hometowns and play a synergistic role in this relationship, but the supervision effect of remote appointments is not obvious.Originality/valueThrough endogeneity and other tests, the conclusion is robust. Based on the agency and information asymmetry theory, the authors considered China's institutional and cultural factors, optimized accounting information's measurement and expanded the research boundary of the accounting field. The authors believe that applicable scenarios should be fully considered in the concluding relationship between accounting information quality and cash holdings. Enterprises should give full play to the advantages of cash holdings in strategic decision-making and financial efficiency, improve the quality of accounting information and also consider state ownerships and the differences in directors' emotions to reduce internal agency costs.

전략적 일탈이 연구개발비 행태에 미치는 영향

[Purpose]This study empirically examines the cost behavior of R&D expenditures according to the level of strategic deviance of companies.
 [Methodology]In this study, we set up a research model based on Anderson et al.(2003) and conduct an empirical analysis on Korean listed companies from 2001 to 2022.
 [Findings]As a result of empirical analysis, we find anti－stickiness cost behavior in R&D expenditures from strategic deviance companies. This means that the higher the level of strategic deviance, the greater the tendency to excessively reduce R&D expenditures if the current sales is weaker compared to the previous year. In other words, it is interpreted that managers of strategic deviance companies have an incentive to significantly reduce R&D expenditures, which are mostly accounted for at current expenses, in order to increase the level of cash holdings.
 [Implications]This study will contribute to verifying that the cost behavior of R&D expenditures can change depending on the level of strategic deviance for Korean listed companies. In particular, it suggests that corporate strategies can have a significant impact on the decision－making of managers related to R&D expenditures, and that strategic deviance can increase uncertainty and risk of corporate performance.