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COVID-19 and Precautionary Corporate Cash Holdings: Evidence from Japan

Author

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  • Honda, Tomohito
  • Uesugi, Iichiro

Abstract

This study examines how listed firms have managed their cash holdings since the outbreak of the COVID-19 crisis, using quarterly data on publicly-traded firms in Japan. After providing an overview of developments in cash holdings since the start of the crisis, we focus on the precautionary motive for corporate cash holdings and examine the role of firms’ cash flow and volatility therein in firms’ cash holdings to find the following: (1) corporate cash holdings have increased rather than decreased since the start of the crisis; (2) an increase in firms’ cash flow has a positive impact on their cash holdings during normal times, and the sensitivity of cash holdings to cash flows was more pronounced during the first three months of the crisis; (3) firms facing higher sales volatility held more cash in the second three-month period following the start of the crisis; and (4) the cash flow sensitivity of financially constrained firms’ cash holdings during the crisis period increased more than that of unconstrained firms. Overall, the COVID-19 crisis has had a substantial impact on corporate cash management strategies and the results are consistent with the precautionary motive theory for cash holdings.

Suggested Citation

  • Honda, Tomohito & Uesugi, Iichiro, 2021. "COVID-19 and Precautionary Corporate Cash Holdings: Evidence from Japan," RCESR Discussion Paper Series DP21-2, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:rcesrs:dp21-2
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/71079/dp21-2_rcesr.pdf
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    References listed on IDEAS

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    Cited by:

    1. Bukalska Elżbieta & Maziarczyk Anna, 2023. "Impact of financial constraints and financial distress on cash holdings," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 59(1), pages 13-31, March.
    2. Bishal BC & Thuy Simpson, 2023. "How do firms learn? Evidence from corporate cash holdings during the COVID‐19 pandemic," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 77-108, March.

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    More about this item

    Keywords

    Cash holdings; Precautionary motive; COVID-19;
    All these keywords.

    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

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