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Cross-country analysis of secular cash trends

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  • Iskandar-Datta, Mai E.
  • Jia, Yonghong

Abstract

This study documents a pronounced secular upward trend in cash holdings which is almost systemic across seven industrialized countries over 1991–2008, with France exhibiting a modest rise and Japan a substantial decline. However, the driving forces underlying the cash pattern are not uniform across countries. While the evolution in firm characteristics necessitated elevated cash balances, the time-varying firm attributes explain the cash trend only in Canada, France, UK and the US. The agency motive plays a role in the rise in cash balances in Germany. Our analysis highlights that the functioning of the financial system is crucial to corporate cash policy as Australia’s cash pattern is driven by shallow private credit markets that curbed cash reserves earlier on and the decelerating cash trend in Japan is ascribed to financial reforms. While there is a degree of commonality in the determinants of cash policies, we find some divergence in cash practices.

Suggested Citation

  • Iskandar-Datta, Mai E. & Jia, Yonghong, 2012. "Cross-country analysis of secular cash trends," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 898-912.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:3:p:898-912
    DOI: 10.1016/j.jbankfin.2011.10.003
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    Cited by:

    1. Rashid Ameer, 2012. "Impact of cash holdings and ownership concentration on firm valuation: Empirical evidence from Australia," Review of Accounting and Finance, Emerald Group Publishing, vol. 11(4), pages 448-467, October.
    2. Houdou Basse Mama & Alexander Bassen, 2017. "Neglected disciplinary effects of investor relations: evidence from corporate cash holdings," Journal of Business Economics, Springer, vol. 87(2), pages 221-261, February.
    3. Sabri Boubaker & Imen Derouiche & Duc Nguyen, 2015. "Does the board of directors affect cash holdings? A study of French listed firms," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(2), pages 341-370, May.
    4. May, Anthony D., 2014. "Corporate liquidity and the contingent nature of bank credit lines: Evidence on the costs and consequences of bank default," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 410-429.
    5. Takafumi Sasaki, 2015. "The Effects of Liquidity Shocks on Corporate Investments and Cash Holdings: Evidence from Actuarial Pension Gains/Losses," Financial Management, Financial Management Association International, vol. 44(3), pages 685-707, September.
    6. repec:eee:corfin:v:45:y:2017:i:c:p:608-631 is not listed on IDEAS
    7. Anderson, Ronald W. & Hamadi, Malika, 2016. "Cash holding and control-oriented finance," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 410-425.
    8. Bruce Seifert & Olubunmi Faleye & Halit Gonenc, 2012. "Creditor Rights, Country Governance, and Corporate Cash Holdings," Koç University-TUSIAD Economic Research Forum Working Papers 1214, Koc University-TUSIAD Economic Research Forum.
    9. Nakajima, Kan & Sasaki, Takafumi, 2016. "Bank dependence and corporate propensity to save," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 150-165.
    10. Mai Iskandar-Datta & Yonghong Jia, 2014. "Investor protection and corporate cash holdings around the world: new evidence," Review of Quantitative Finance and Accounting, Springer, vol. 43(2), pages 245-273, August.
    11. Locorotondo, Rosy & Dewaelheyns, Nico & Van Hulle, Cynthia, 2014. "Cash holdings and business group membership," Journal of Business Research, Elsevier, vol. 67(3), pages 316-323.
    12. Natalia Nehrebecka & Anna Białek-Jaworska, 2016. "Determinanty inwestycji finansowych przedsiębiorstw w Polsce," Gospodarka Narodowa, Warsaw School of Economics, issue 3, pages 35-55.

    More about this item

    Keywords

    International corporate finance; Corporate liquidity; Agency problem;

    JEL classification:

    • 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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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