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Cash holdings in private firms

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  • Bigelli, Marco
  • Sánchez-Vidal, Javier

Abstract

Evidence from a wide sample of Italian private firms shows that cash holdings are significantly related with smaller size, higher risk and lower effective tax rates, therefore supporting predictions from the trade-off model. More cash is also held by firms with longer cash conversion cycles and lower financing deficits, as predicted by the financing hierarchy theory. Reported evidence also shows that dividend payments are associated with more cash holdings, and both bank debt and net working capital represent good cash-substitutes. When controlling for macroeconomic and industry factors, some variables lose their significance, but the general findings are confirmed. Finally, cash-rich companies are found to be more profitable, to pay more dividends and to invest more in a medium-term future horizon.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 36 (2012)
Issue (Month): 1 ()
Pages: 26-35

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Handle: RePEc:eee:jbfina:v:36:y:2012:i:1:p:26-35

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Cash holdings; Cash determinants; Private firms; Trade-off model; Pecking order theory;

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References

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Cited by:
  1. Kremp, E. & Sevestre, P., 2012. "Did the crisis induce credit rationing for French SMEs?," Working papers, Banque de France 405, Banque de France.

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