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Cash holdings are increasing and financial crisis strenghts it

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  • Alves, Paulo
  • Morais, Francisco

Abstract

The goal of this paper is to study the determinants of firms’ cash holdings and how cash holdings were affected by the financial crisis of 2008. Using data from the period of 1995 to 2014 of non-financial firms, we present almost 265,000 firm-year observations. Our results suggest that cash holdings have a positive relationship with investment set and a negative relationship with liquidity and firm size. Our results also show that cash holdings are influenced by capital market development and banking sector, as well as by inflation. Agency theory determinants demonstrate that firms in common law countries and countries with higher law enforcement still hold higher amounts of cash holdings. Cash holdings post-crisis are higher than pre-crisis and there is a spike in cash holdings during 2009. Our hypothesis for these results are explained by the precautionary motive.

Suggested Citation

  • Alves, Paulo & Morais, Francisco, 2018. "Cash holdings are increasing and financial crisis strenghts it," MPRA Paper 83799, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:83799
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    File URL: https://mpra.ub.uni-muenchen.de/83799/1/MPRA_paper_83799.pdf
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    Cited by:

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    More about this item

    Keywords

    Free cash flow theory; Pecking order theory; trade-off theory; Precautionary motive; Financial crisis.;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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