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Impact of financial constraints and financial distress on cash holdings

Author

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  • Bukalska Elżbieta

    (Faculty of Economics, Maria Curie-Skłodowska University in Lublin, Lublin, Poland .)

  • Maziarczyk Anna

    (Faculty of Economics, Maria Curie-Skłodowska University in Lublin, Lublin, Poland .)

Abstract

The aim of the study is to examine the impact of financial constraints and financial distress on cash holdings, both in normal and crisis times. We collected the 4,406 firm-year observations of companies listed on the Warsaw Stock Exchange (WSE). Our research shows that companies maintain higher cash holdings during a crisis than in a normal period. However, in contrast to our expectations, companies with financial difficulties (constraints and distress) have lower cash holdings both in normal and crisis times. The originality of our research lies in realizing that different sources of difficulties might overlap at the same time (external with internal). We also analyze how cash holdings react to a combined impact of difficulties of different natures (external and internal). We believe that cash holdings have recently increased their meaning as we face the situation of constant and increasing uncertainty: still ongoing COVID-19 crisis prolonged with Russian aggression on Ukraine and outburst of inflation.

Suggested Citation

  • Bukalska Elżbieta & Maziarczyk Anna, 2023. "Impact of financial constraints and financial distress on cash holdings," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 59(1), pages 13-31, March.
    • Handle: RePEc:vrs:ijomae:v:59:y:2023:i:1:p:13-31:n:1
    DOI: 10.2478/ijme-2022-0032
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    More about this item

    Keywords

    cash holdings; COVID-19 crisis; financial constraints; financial distress; global financial crisis;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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