An Analysis of the Corporate Cash Holding Decision
AbstractWe investigate the tradeoff theory as an explanation for how managers allocate cash to post-spin-off parent and subsidiary firms. Spin-offs provide an opportunity to examine the determinants of cash holdings free from the confounding effects of the pecking order theory. Our results indicate that difference in asset size, sales growth, research and development expenses, net working capital, and leverage significantly affect the difference in cash holdings of post-spin-off entities. These results suggest that cash holdings are decreasing in the ease of raising cash and availability of cash from internal sources, and are increasing in growth opportunities, asymmetric information levels, and financial distress costs.
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Bibliographic InfoPaper provided by University of New Orleans, Department of Economics and Finance in its series Working Papers with number 2005-02.
Length: 45 pages
Date of creation: Nov 2005
Date of revision:
Trade-off theory; Spin-off; Cash holding;
Find related papers by JEL classification:
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-05-06 (All new papers)
- NEP-CFN-2006-05-06 (Corporate Finance)
- NEP-FIN-2006-05-06 (Finance)
- NEP-FMK-2006-05-06 (Financial Markets)
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