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A state-of-the-art review of corporate cash holding research

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  • Jan Felix Weidemann

    (University of Cologne)

Abstract

This study contributes to a better understanding of the determinants of corporate cash holdings and their effects on firm value. First, the extensive theoretical basis of corporate cash policies is disentangled. I distinguish two categories of theories. The first category comprises theories that stem from capital structure research, namely, the trade-off theory and the pecking-order theory. The second category includes theories that focus on agency conflicts. Second, this review identifies the most common proxies used in empirical research, aggregates them into general categories of determinants, and compares their predicted influences, according to different theories. In sum, ten general determinants, including firm size, growth opportunities, leverage, liquidity substitutes and corporate governance, are found to influence corporate cash holdings. Third, this article reviews the empirical evidence regarding what determines the level and market value of cash holdings, compares these observed associations to the predicted theoretical associations, and identifies avenues for future research.

Suggested Citation

  • Jan Felix Weidemann, 2018. "A state-of-the-art review of corporate cash holding research," Journal of Business Economics, Springer, vol. 88(6), pages 765-797, August.
    • Handle: RePEc:spr:jbecon:v:88:y:2018:i:6:d:10.1007_s11573-017-0882-4
    DOI: 10.1007/s11573-017-0882-4
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    More about this item

    Keywords

    Corporate cash holdings; Pecking-order theory; Trade-off theory; Agency theory; Corporate governance; State-of-the art; Review;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G3 - Financial Economics - - Corporate Finance and Governance

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