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Cash holdings and SME performance in Europe: the role of firm-specific and macroeconomic moderators

Author

Listed:
  • Maurizio Rocca

    (University of Calabria)

  • Raffaele Staglianò

    (Montpellier Business School, Montpellier Research in Management
    University of Messina)

  • Tiziana Rocca

    (University of Messina)

  • Alfio Cariola

    (University of Calabria)

  • Ekaterina Skatova

    (University of Calabria)

Abstract

For the first time, this paper examines the way in which cash holdings affect firm operating performance in a wide sample of European small and medium-sized enterprises (SMEs). Our results suggest that cash holdings have a positive effect on operating performance, supporting the relevance of precautionary savings motive for SMEs. Maintaining a buffer of money on hand, ready for use in any contingency, has a relevant positive effect that overcomes potential opportunistic problems. Moreover, we find that firm-specific characteristics, such as debt, size, age, growth opportunities, and ownership concentration, moderate our baseline relationship. In addition, the study also demonstrates that cash holdings have a stronger positive effect on operating performance in poorer institutional contexts. Notably, we also find that the stock of cash had a relevant role in supporting firm performance during the recent global financial crisis. Finally, we report additional analyses to corroborate our baseline results.

Suggested Citation

  • Maurizio Rocca & Raffaele Staglianò & Tiziana Rocca & Alfio Cariola & Ekaterina Skatova, 2019. "Cash holdings and SME performance in Europe: the role of firm-specific and macroeconomic moderators," Small Business Economics, Springer, vol. 53(4), pages 1051-1078, December.
  • Handle: RePEc:kap:sbusec:v:53:y:2019:i:4:d:10.1007_s11187-018-0100-y
    DOI: 10.1007/s11187-018-0100-y
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    More about this item

    Keywords

    Cash holdings; SMEs; Firm operating performance; Institutional context;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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