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Corporate cash holdings: Causes and consequences

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  • Amess, Kevin
  • Banerji, Sanjay
  • Lampousis, Athanasios

Abstract

The considerable growth in corporate cash holdings around the world has prompted scholarly interest. Consequently, there is now a large academic literature examining cash holdings and their impact on corporate outcomes and firm values. This article reviews and synthesizes the literature to offer insight into two primary motives to hold cash: precautionary and agency. We first present a stylized model that explores the trade-off in holding cash between these two motives and then examine empirical studies to determine how existing theories are supported by evidence using data from a variety of countries. In addition, we examine the effectiveness of a variety of corporate governance devices in curtailing cash holdings and also the extent to which these devices offer investors' confidence that cash will not be wasted. Finally, we discuss methodological and measurement issues associated with empirical cash holdings studies.

Suggested Citation

  • Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
  • Handle: RePEc:eee:finana:v:42:y:2015:i:c:p:421-433
    DOI: 10.1016/j.irfa.2015.09.007
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    12. Denis, David J., 2011. "Financial flexibility and corporate liquidity," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 667-674, June.
    13. Bigelli, Marco & Sánchez-Vidal, Javier, 2012. "Cash holdings in private firms," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 26-35.
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    More about this item

    Keywords

    Cash holdings; Liquidity; Corporate governance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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