Why do firms hold cash? Evidence from Korean stock listings

Corporate governance and the availability of external financing can be important determinants of corporate cash holdings. In this research, in line with Opler et al. (1999), the authors find that Korean firms’ cash holdings are affected by firm-level characteristics including firm size, leverage, market to book, cash flow ratio, net working capital, and cash flow volatility in addition to corporate governance. Rather than agency-prone, the authors can ascribe the increase in cash holdings to the precautionary corporate demand for cash (Campbell et al., 2001). The authors also report that operating risks stemming from cash flow volatility, unavailability of external finance, credit rating downgrades, etc., may be associated with precautionary corporate demand for cash. Lastly, it is documented that corporate governance proxied for by block and/or insider ownership stakes is inversely associated with corporate cash holdings. Keywords: demand for money, corporate governance, corporate cash holding. JEL Classification: G39, E41, G34

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FINANCIAL CONSTRAINTS AND CORPORATE CASH HOLDINGS: AN EMPIRICAL ANALYSIS USING FIRM LEVEL DATA

Annals of Financial Economics ◽

10.1142/s2010495217500099 ◽

2017 ◽

Vol 12 (02) ◽

pp. 1750009 ◽

Cited By ~ 1

Author(s):

ABDUL RASHID ◽

MARYAM ASHFAQ

Keyword(s):

Cash Flow ◽

Firm Size ◽

Financial Constraints ◽

Cash Holdings ◽

Firm Level ◽

Book Value ◽

Level Data ◽

Alternative Measures ◽

Cash Flow Volatility ◽

Corporate Cash Holdings

This paper empirically investigates whether the sensitivity of cash to its firm-specific determinants differs across financially constrained and unconstrained firms. We sort out firm-year observations as financially constrained and unconstrained based on the median value of three alternative measures: the firm size, dividend payout ratio, and Whited and Wu (WW) index. In order to mitigate the problem of endogeneity and to take into account the dynamic nature of the panel dataset, we apply the robust two-step system-GMM estimator on unbalanced annual panel dataset covering the period 2001–2013. The results suggest that financially constrained firms (FCFs) decrease their cash holdings with size, leverage, and the payout ratio, while they increase their cash amounts with both the market-to-book value and the cash flow volatility. On the other hand, for financially unconstrained firms (FUCFs), we show that there is a positive relationship between cash holdings and firm size, the payout ratio, and the market-to-book value, while both the cash flow volatility and leverage are negatively related to cash holdings. These asymmetries in the sensitivity of cash to its determinants are robust across all the three measures of financial constraints used in the study.

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Corporate Governance and Cash Holdings

Corporate Governance and Its Implications on Accounting and Finance - Advances in Finance, Accounting, and Economics ◽

10.4018/978-1-7998-4852-3.ch014 ◽

2021 ◽

pp. 305-321

Author(s):

Ahmed Hassanein

Keyword(s):

Corporate Governance ◽

Cash Holdings ◽

Opportunistic Behavior ◽

Governance System ◽

Firm Level ◽

Corporate Managers ◽

Country Level ◽

Corporate Governance System ◽

The Impact ◽

Corporate Cash Holdings

Corporate cash induces the opportunistic behavior of corporate managers that can create an agency problem. A corporate governance system controls the opportunistic behavior of managers and can affect the firm's policy on holding cash. This study explains how the aspects of corporate governance, country-level and firm-level governance, can affect the corporate policy on holding cash. First, the study provides the nature, definition, and importance of corporate cash holdings. Second, it outlines various motivations and theories behind holding corporate cash. Third, it explains the relation between firm-level governance and corporate cash holdings. Fourth, it focuses on the impact of firm-specific governance attributes on the level of corporate cash holdings. Fifth, it presents the relation between country-level governance and corporate cash holdings.

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The Determinants of Corporate Cash Holdings: The Case of a Small Emerging Market

International Journal of Financial Research ◽

10.5430/ijfr.v8n1p143 ◽

2016 ◽

Vol 8 (1) ◽

pp. 143

Author(s):

Ghada Tayem

Keyword(s):

Cash Flow ◽

Emerging Market ◽

Cash Holdings ◽

Estimation Methods ◽

Dynamic Effects ◽

Growth Opportunities ◽

Trade Off ◽

Cash Flow Volatility ◽

Cash Reserves ◽

Corporate Cash Holdings

This study investigates the factors influencing the level of corporate cash holdings in the context of Jordan, a small emerging market characterized by large market frictions. This article employs the framework of the trade off, financing hierarchy, and managerial discretion theories to predict determinants of cash reserves. Then it examines these predictions using a sample of listed nonfinancial Jordanian firms over the period 2005-2013 using alternative estimation methods. Consistent with the trade-off theory, the results show that firm size and cash substitutes have negative and significant impact on cash holdings while growth opportunities and cash flow volatility have positive and significant impact. In addition, and consistent with the financing hierarchy view, the results show that cash flow and growth opportunities have positive and significant impact on cash holdings. Also, the study documents that leverage is negatively related to cash holdings while squared leverage is positively related to cash reserves. Finally, the results indicate that there are significant dynamic effects in determining cash holding targets.

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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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Cash Holdings and Corporate Governance

10.4018/978-1-6684-3550-2.ch017 ◽

2022 ◽

pp. 395-416

Author(s):

Elif Akben-Selcuk ◽

Pinar Sener

Keyword(s):

Corporate Governance ◽

Cash Flow ◽

Linear Relation ◽

Cash Holdings ◽

Family Ownership ◽

Board Structure ◽

Factors Affecting ◽

Cash Reserves ◽

Nonfinancial Firms ◽

Corporate Cash Holdings

This chapter investigates the empirical factors affecting corporate cash holdings with special emphasis on corporate governance variables for a sample of Turkish-listed nonfinancial firms over the period 2006 to 2010. The findings reveal a significant non-linear relation between family ownership and cash holdings. In addition, while board structure does not significantly affect the level of cash holdings, tunneling increases cash reserves of firms. Furthermore, the results indicate that cash flow, leverage, other liquid assets that can be used as cash substitutes, the degree of tangibility of assets, and firm size are important in determining cash holdings among Turkish companies.

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Financial Development and the Cash Flow Sensitivity of Cash

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109000002647 ◽

2006 ◽

Vol 41 (4) ◽

pp. 787-808 ◽

Cited By ~ 117

Author(s):

Inder K. Khurana ◽

Xiumin Martin ◽

Raynolde Pereira

Keyword(s):

Financial Development ◽

Cash Flow ◽

Financial Constraints ◽

Cash Holdings ◽

Cash Flows ◽

External Financing ◽

Firm Level ◽

Investment Projects ◽

Flow Sensitivity ◽

Cash Flow Sensitivity

AbstractPrior research posits that market imperfections and the lack of institutions that protect investor interests create a divergence between the cost of internal and external funds, thereby constraining firms' ability to fund investment projects through external financing. Financial constraints force firms to manage their cash flows to finance potentially profitable projects. A related stream of research documents that financial constraints due to costly external financing are more pronounced in underdeveloped financial markets. We examine the influence of financial development on the demand for liquidity by focusing on how financial development affects the sensitivity of firms' cash holdings to their cash flows. Using firm-level data for 35 countries covering about 12,782 firms for the years 1994–2002, we find the sensitivity of cash holdings to cash flows decreases with financial development. We also consider additional implications of firms' cash flow sensitivity of cash with respect to firm size and business cycles. Overall, we provide new cross-country evidence of the role of financial development on financial constraints.

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The determinants of corporate cash holdings levels: evidence from selected South African retail firms

Investment Management and Financial Innovations ◽

10.21511/imfi.14(2).2017.08 ◽

2017 ◽

Vol 14 (2) ◽

pp. 79-93 ◽

Cited By ~ 1

Author(s):

Trust Chireka ◽

Michael Bamidele Fakoya

Keyword(s):

South African ◽

Cash Flow ◽

Capital Expenditure ◽

Panel Data Analysis ◽

Cash Holdings ◽

Developed Countries ◽

Liquid Asset ◽

Dividend Payments ◽

Cash Flow Volatility ◽

Corporate Cash Holdings

With corporate cash holdings on the rise, stakeholders need to know, among other things, what informs the companies’ cash holding policies and whether there are any benefits to be derived from piling up these cash reserves. Studies conducted in developed countries have identified the following as determinants of corporate cash holdings: firm size, growth opportunities, liquid asset substitutes, capital expenditure, leverage, dividend payments, cash flows and cash flow volatility. Few studies have focused on what drives firms’ cash holdings behavior in emerging economies. This study, the first of its kind, investigated the determinants of corporate cash holdings in the South African retail industry. The paper used panel data analysis to test the relationships between cash holdings level and the identified determinant factors. The authors found evidence that liquid asset substitutes, capital expenditure, dividend payments and cash flow volatility significantly influence the cash holdings levels of retail firms listed on the Johannesburg Stock Exchange.

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Investigating the Relationship of Corporate Cash Holdings, Corporate Governance, and Firm Performance in Malaysia

Advances in Finance, Accounting, and Economics - Comparative Research on Earnings Management, Corporate Governance, and Economic Value ◽

10.4018/978-1-7998-7596-3.ch013 ◽

2021 ◽

pp. 263-283

Author(s):

Kiarash Ehtiat Karrahemi ◽

Siti Zaleha Abdul Rasid ◽

Rohaida Basiruddin ◽

Maizaitulaidawati Md Husin

Keyword(s):

Corporate Governance ◽

Firm Performance ◽

Cash Flow ◽

Panel Data Analysis ◽

Cash Holdings ◽

Free Cash Flow ◽

Flow Theories ◽

Relationship Of ◽

The Relationship ◽

Corporate Cash Holdings

Current practice shows that firms throughout the world are in favor of high cash holdings; yet, they are still performing well. This situation contradicts the agency and free cash flow theories, which suggest that excessive cash may increase agency costs and lower firm performance. The purpose of this study is to examine the relationship between corporate governance, cash holdings, and firm performance. Five thousand four hundred twenty observations were conducted, and a balanced panel data analysis was performed. The results indicate that corporate governance has a significant impact on cash holdings, corporate governance has a significant impact on firm performance, and cash holding has a significant impact on a firm's performance. The findings of this study do not show any evidence to support the agency and free cash flow theories among non-financial Malaysian firms listed on Bursa Malaysia. Thus, this study contributes to the finance and accounting literature by gaining a better understanding of firm performance indicators in Malaysia, specifically.

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