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Cash Holdings Policy: a Dynamic Analysis of Brazilian Companies

Author

Listed:
  • Fadwa Muhieddine Dahrouge

    (Instituto Nacional de Pesquisas Espaciais)

  • Richard Saito

    (Fundação Getulio Vargas)

Abstract

This paper investigates how corporate cash holdings were adjusted over time for Brazilian companies during the crisis of 2008-2009. We adopt a dynamic model of corporate cash holdings to evaluate the main determinants for the speed of adjustment of cash holdings at the optimum level. We find evidence that: a) the adjustment costs of Brazilian companies are high implying a delay in reaching the optimum level of cash; b) the low speed adjustment to the optimum level is due to the limited availability of credit and the high cost of bank debt; c) during crisis, the changes in working capital are positively related to the level of cash holdings providing evidence that companies prefer finance to growth with liquidity; d) companies have looked for long-term financing to secure liquidity rather than investing on fixed assets, implying a negative relationship between investment and cash holding.

Suggested Citation

  • Fadwa Muhieddine Dahrouge & Richard Saito, 2013. "Cash Holdings Policy: a Dynamic Analysis of Brazilian Companies," Brazilian Review of Finance, Brazilian Society of Finance, vol. 11(3), pages 343-373.
    • Handle: RePEc:brf:journl:v:11:y:2013:i:3:p:343-373
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    More about this item

    Keywords

    cash holdings; costs of adjustments; dynamic trade-off; liquid assets; working capital;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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