Cash holdings, firm size and access to external finance. Evidence for the euro area
AbstractThis paper investigates the empirical determinants of corporate cash holdings in the euro area as a function of firm size. The results show that there are significant differences in investment in liquid assets for firms of different size. More specifically, liquid assets for smaller firms in the euro area are more strongly linked to firm cash flow and its variability than cash holdings for larger firms, possibly as a result of their more restricted access to external funds and the need to provide for future investment needs. Likewise, results show that the link between cash holdings and tangible assets, which facilitate access to external finance, is stronger for small and medium-sized firms than for large firms. In contrast, cash holding sensitivity to variations in the spread between the return on liquid assets and alternative uses of these funds (debt repayment, in the empirical specification presented in this paper) is higher for larger firms, something that might be linked to their better access to capital markets and their lower need to keep a cash buffer for precautionary reasons.
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Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1034.
Length: 25 pages
Date of creation: Nov 2010
Date of revision:
cash holdings; financing constraints; panel data;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-27 (All new papers)
- NEP-BEC-2010-11-27 (Business Economics)
- NEP-EEC-2010-11-27 (European Economics)
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