Industry differences and their influence on why companies retain cash: the impact of the COVID-19 pandemic

This study investigates how industry characteristics impact corporate cash policies and whether these relationships shifted during the COVID-19 pandemic, using a sample of Greek private firms from 2015 to 2021. We employ regression analysis with pandemic interaction terms to quantify industry differences in cash holdings determinants before and during the COVID-19 crisis. Results show that while leverage, profitability, working capital, size, and capital intensity significantly affect cash holdings, substantial heterogeneity emerges across the manufacturing, retail, transportation, and hospitality sectors. Firms increased precautionary cash during the pandemic, but sensitivities between key determinants and liquidity diverged across industries, reflecting different financial constraints and risk exposures. In additional tests, we identify plausible channels through which firm-level determinants affect cash holdings, and we further find that excess cash stimulates capital investments, while liquidity shortfalls curtail expenditures and heighten default risks. By leveraging exogenous variation from the COVID-19 shock and quantifying sectoral differences, this study provides novel evidence on drivers of corporate cash policies across industries. These findings suggest that targeted liquidity strategies can help managers navigate systemic shocks and inform policymakers on designing sector-specific relief measures.