Local financial development and cash holdings in Italian SMEs

International Small Business Journal Researching Entrepreneurship ◽

10.1177/02662426211011554 ◽

2021 ◽

pp. 026624262110115

Author(s):

Francesco Fasano ◽

Marc Deloof

Keyword(s):

Financial Development ◽

Cash Holdings ◽

Bank Debt ◽

Bank Branches ◽

Negative Effect ◽

Italian Provinces ◽

Corporate Cash Holdings

In this article, we investigate the effect of local financial development on cash holdings of Italian small and medium-sized enterprises (SMEs). Consistent with the hypothesis that local financial development reduces the need to hold precautionary cash because it facilitates access to bank debt, we find that local financial development measured by the density of bank branches in Italian provinces has a negative effect on corporate cash holdings. This effect is driven by SMEs with bank debt. Furthermore, the negative effect of local financial development on cash holdings only exists for younger and smaller SMEs, which are more likely to benefit from increased local financial development. Our work highlights that local financial development is an important driver of policies on holding cash by SMEs and is particularly relevant during crisis periods, such as the recent COVID-19 crisis.

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The impact of institutional factors on corporate mechanism of cash adjustment – New evidence from emerging Asia

International Journal of Managerial Finance ◽

10.1108/ijmf-01-2021-0032 ◽

2022 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Santanu Das ◽

Ashish Kumar ◽

Asit Bhattacharyya

Keyword(s):

Financial Development ◽

Cash Holdings ◽

Content Type ◽

Adjustment Mechanism ◽

Management Policies ◽

New Evidence ◽

Corporate Cash Holdings ◽

Adjustment Dynamics ◽

Country Specific

PurposeThe purpose of this study is to understand how the business environment of a country has an impact on cash management policies of the firms and also to investigate if there is any asymmetry in cash adjustment dynamics when a firm deviates from its long-term target of cash holdings.Design/methodology/approachUsing a sample of seven emerging Asian countries in the period 2001–2019, the authors investigate the role of country specific variables in the corporate cash holdings and their cash adjustment mechanism. They use the panel data regression method to estimate the results.FindingsThe authors find that the overall financial development of a country has a significant impact on corporate cash holdings and cash adjustment dynamics. When a firm has excess cash, the speed of adjustment towards the target is faster as compared to when it has deficit cash holdings. Further, when a firm holds excess cash, it adjusts towards the target using cash from investments; in case of deficit cash holdings, the adjustment happens via cash from financing activities.Practical implicationsThe results of the study are helpful to corporate managers as these are important references to them to understand and design cash management policies by considering factors that are measured at the country level. It also provides them a clearer understanding about the role of corporate board and information asymmetry in cash holdings.Originality/valueThis is the first study which examines the role of country-specific variables on corporate cash holdings and their adjustment mechanism of firms in emerging Asia. Further, the study extends the literature by providing new evidence that there is asymmetry in cash adjustment dynamics of firms after controlling for the overall financial development of a country.

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Determinants of corporate cash holdings: An empirical study of Chinese listed firms

Corporate Ownership and Control ◽

10.22495/cocv15i3art5 ◽

2018 ◽

Vol 15 (3) ◽

pp. 57-65

Author(s):

Rizwan Ahmed ◽

Wu Qi ◽

Subhan Ullah ◽

Danson Kimani

Keyword(s):

Corporate Governance ◽

Cash Flow ◽

Fixed Effects ◽

Negative Relationship ◽

Cash Holdings ◽

Developed Countries ◽

Bank Debt ◽

Chinese Context ◽

The Developed Countries ◽

Corporate Cash Holdings

This study explores the determinants of corporate cash holdings in the Chinese context. As one of the largest developing countries in the world, China offers an interesting opportunity to explore the role of corporate governance, and ownership structure in explaining corporate cash holdings. Owing to the unique economic problems in the developing and emerging economies, this study aims to investigate whether the research findings on developed countries could be generalized globally. Applying fixed-effects estimations on a sample of 115 Chinese firms listed between 2012 and 2016, we find that the level of corporate cash holdings has a significantly negative relationship with leverage, bank debt, non-cash liquid assets and managerial ownership. In particular, cash flow volatility, investment opportunity and dividend have a significantly positive relationship with cash holdings levels. These findings are consistent with the majority of the existing studies carried out in the Western context. We also find that firm size, cash flow, board independence and ownership concentration have a significant influence on the level of corporate cash holdings. Our study contributes to the finance literature and we offer new insights into the relationship between corporate governance and corporate cash holdings in the Chinese context. Some of the findings on the developed countries could be generalized to a wider context. Further, the unique relationship between corporate governance and cash holdings in the Chinese context provides empirical insights for further research.

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Políticas de Cash Holdings: uma Abordagem Dinâmica das Empresas Brasileiras

Brazilian Review of Finance ◽

10.12660/rbfin.v11n3.2013.6042 ◽

2013 ◽

Vol 11 (3) ◽

pp. 343

Author(s):

Fadwa Muhieddine Dahrouge ◽

Richard Saito

Keyword(s):

Negative Relationship ◽

Cash Holdings ◽

Adjustment Costs ◽

Optimum Level ◽

Bank Debt ◽

Speed Of Adjustment ◽

Fixed Assets ◽

Main Determinants ◽

Corporate Cash Holdings

This paper investigates how corporate cash holdings were adjusted over time for Brazilian companies during the crisis of 2008-2009. We adopt a dynamic model of corporate cash holdings to evaluate the main determinants for the speed of adjustment of cash holdings at the optimum level. We find evidence that: a) the adjustment costs of Brazilian companies are high implying a delay in reaching the optimum level of cash; b) the low speed adjustment to the optimum level is due to the limited availability of credit and the high cost of bank debt; c) during crisis, the changes in working capital are positively related to the level of cash holdings providing evidence that companies prefer finance to growth with liquidity; d) companies have looked for long-term financing to secure liquidity rather than investing on fixed assets, implying a negative relationship between investment and cash holding.

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