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A Global Look into Corporate Cash after the Global Financial Crisis

Author

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  • Kei-Ichiro Inaba

    (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: keiichirou.inaba@boj.or.jp))

Abstract

This article investigates the determinants of cash holdings by publicly-traded firms for 20 advanced and emerging countries over the last decade, with a focus on ratios of the firms' aggregate cash to their total assets. Panel-data regressions find that higher cash ratios were associated with fewer non-cash current assets, smaller costs of carry, larger contemporaneous cash inflows, fewer interest-bearing liabilities, greater expected investment opportunities, including research and development projects, greater uncertainty, and the state of corporate governance. Regarding the last result, higher cash ratios were associated with managers with worse ethical behavior, lower accountability to investors and board members, weaker investor protection, harsher auditing and reporting standards, and greater potential to face holdup problems by lending banks. The agency motive was greater than the precautionary and transaction-costs motives in terms of marginal impact while being limited in terms of explanatory power over total variation in the cash ratios.

Suggested Citation

  • Kei-Ichiro Inaba, 2020. "A Global Look into Corporate Cash after the Global Financial Crisis," IMES Discussion Paper Series 20-E-07, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:20-e-07
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    File URL: https://www.imes.boj.or.jp/research/papers/english/20-E-07.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate finance; Cash holdings; Precautionary saving motive; Corporate governance; Agency problem;
    All these keywords.

    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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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