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

2017 ◽  
Vol 14 (2) ◽  
pp. 79-93 ◽  
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.

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

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.

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

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.

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

2017 ◽  
Vol 12 (02) ◽  
pp. 1750009 ◽  
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.

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

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.

scholarly journals Determinants of Corporate Cash Holdings in Hospitality Sector of France, Spain and United States of America

2020 ◽  
Vol V (III) ◽  
pp. 55-66
Author(s):  
Majid Mumtaz ◽  
Wisal Ahmad ◽  
Syed Arshad Ali Shah
Keyword(s):  
Cash Flow ◽  
Capital Expenditure ◽  
Stock Exchange ◽  
Generalized Method Of Moments ◽  
Cash Holdings ◽  
Dynamic Panel Data ◽  
Empirical Estimation ◽  
Expenditure Growth ◽  
Hospitality Sector ◽  
Cash Flow Volatility

This study determines the effect of parameters used for cash holding in hospitality sector (HS) of target countries i-e France, Spain and United State of America for the period of 14 years (2005-2018). The parameters consist of firm size, leverage, capital expenditure, growth opportunity, liquidity, cash flow, cash flow volatility, asset intangibility, dividend payments and stock exchange. Dynamic panel data is employed for empirical estimation i-e Generalized Method of Moments (GMM). System GMM model estimation reveals that leverage, cash flow volatility and asset intangibility influence cash holdings positively while size, capital expenditure, growth opportunities and cash flow affect cash holdings negatively.

scholarly journals Cash Management in Hospitality Sector of Western Europe

2020 ◽  
Vol 12 (2) ◽  
pp. 109-128
Author(s):  
Wisal Ahmad ◽  
Shahwali Khan ◽  
Mohammad Sohail Yunis
Keyword(s):  
Cash Flow ◽  
Western Europe ◽  
Stock Exchange ◽  
Cash Holdings ◽  
Cash Flows ◽  
Capital Expenditures ◽  
Trade Off ◽  
Dividend Payments ◽  
Hospitality Sector ◽  
Cash Flow Volatility

The study investigates the effect of factors explaining the cash holdings of hospitality sector in five countries of Western Europe, namely, France, Germany, Spain, Italy and United Kingdom for a period of 12 years (2005-2016). The effect of parameters i.e., size, leverage, capital expenditures, growth opportunities, liquidity, cash flow, asset intangibility, cash flow volatility, dividend payments and stock exchange on cash holdings has been empirically tested by employing dynamic estimation methodology i.e., Generalized Method of Moments (GMM). The findings reveal that growth opportunities and dividend payments have a positive effect on cash holdings, while size, leverage, liquidity, cash flow, asset intangibility, cash flow volatility and stock exchange pose a negative effect. Moreover, the subsectors such as airlines, gambling and restaurants and bars are holding more cash in comparison to the travel and tourism. The study empirically supports the trade-off, pecking order and free cash flow theories of cash holdings for the hospitality sector. The academic implications of the study reflect that larger companies in the hospitality sector of Western Europe are more diversified and hence amass more cash. Similarly, supporting the cash flow theory, larger hospitality sector companies hold more cash to bar the agency issues. Moreover, companies in the hospitality sector keep less cash as such companies face close monitoring and attain leverage cheaply. Supporting the trade off theory, companies in the hospitality sector hold considerable fund of cash to counter cash shortages for making investments. Furthermore, companies in the hospitality sector experiencing more cash flows keep less cash, as influx of cash flows serve as a source of liquidity. Furthermore, to be able to pay stable dividends, the hospitality sector companies amass more cash and hence support the trade off theory. The practical implications of the study shows that by utilizing the empirical findings in this study, an investor sensitive to empire-building traits of managers for their private benefits, can infer that large hospitality companies with more leverage and capital expenditures will hold less cash. However, holding excessive cash in such companies can create agency problems. On the other hand, large hospitality companies holding more cash would have an ease in practicing debt financing as holding more cash is an indication of diversification and expansion, making shareholders more heedful about their net earnings.

scholarly journals Why do firms hold cash? Evidence from Korean stock listings

2016 ◽  
Vol 13 (3) ◽  
pp. 311-321
Author(s):  
Paul Moon Sub Choi ◽  
Joung Hwa Choi
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Credit Rating ◽  
Cash Holdings ◽  
Jel Classification ◽  
External Financing ◽  
Firm Level ◽  
External Finance ◽  
Cash Flow Volatility ◽  
Corporate Cash Holdings

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

Determinants of Corporate Cash Holdings

2017 ◽  
Vol 18 (2) ◽  
pp. 416-427 ◽  
Author(s):  
Yogesh Maheshwari ◽  
K.T. Vigneswara Rao
Keyword(s):  
Panel Data ◽  
Fixed Effects ◽  
Capital Expenditure ◽  
Cash Holdings ◽  
Working Capital ◽  
Financial Policies ◽  
Panel Data Regression ◽  
Strong Positive Relationship ◽  
Development Expenditure ◽  
Corporate Cash Holdings

This article aims at examining the financial determinants of corporate cash holdings. The study employs panel data regression method. It uses the fixed-effects method based on Hausman test results for the estimation of panel data model. This study has implications that are beneficial for the business managers to have a better understanding and appreciation of the role and importance of the determinants of corporate cash holdings in formulating and evaluating the corporate financial policies. The results of the study indicate a strong positive relationship between cash holdings and cash flow, dividend payment, market-to-book ratio, net debt issuance and net equity issuance of the sample firms. It is also found that the cash holdings of these firms are negatively affected by net working capital, leverage, research and development expenditure as well as capital expenditure of the firm. The article will help researchers as well as managers to understand as to what motivates the firms to hold cash, given the fact that despite being often termed as a non-earning asset, firms generally hold more cash than their normal working capital requirement.

scholarly journals The Impact of Inflation and Operating Cycle on the Corporate Cash Holdings in South-East Europe

2018 ◽  
Author(s):  
Aleksandar Naumoski ◽  
Péter Juhász
Keyword(s):  
Cash Flow ◽  
Financial Management ◽  
Cash Holdings ◽  
Governance Structure ◽  
Operating Cycle ◽  
East European ◽  
Explanatory Variables ◽  
South East Europe ◽  
The Impact ◽  
Corporate Cash Holdings

Determining optimal cash holding is one of the most crucial issues in the corporate financial management aiming to maximise the shareholder value. The optimum of corporate cash amount is not only dependent on many company-specific factors, but it is also associated with both the corporate governance structure and the institutional and macroeconomic environment. Earlier research papers showed that at the macro level, companies adjust their cash holdings to the changes in the level of the inflation and, at the micro level, to the changes of the operating cycle linked to the turnover of the corporate cash flow. This paper investigates the determinants of corporate cash holdings for a sample of 868 firms from ten South-East European countries (Bosnia and Herzegovina, Bulgaria, Montenegro, Croatia, Greece, Romania, Macedonia, Slovenia, Serbia and Turkey). More specifically, we investigate the influence of the inflation and the corporate operating cycle on the corporate cash holdings. Using company financial data and the country CPI for the period 2006-2015, we apply a balanced panel regression model involving the yearly change of the cash ratio as a dependent variable, and country CPI, operating cycle and other firm-specific control variables as explanatory variables.  Results confirm that both the inflation rate and the operating cycle have substantial influence on the change of the corporate cash holdings also in the region. The relationship of the change in cash and the inflation is non-linear and best described by a U-shaped curve. That means that corporate cash holdings decrease as the level of inflation increases to a critical point but beyond that, the cash holdings start to increase. At the same time, we identified a straight linear relationship between the change in cash holdings and the length of the operating cycle. Also, we found that the change in the corporate cash holdings is positively related to the size of the company, the operating cash flow and the capital expenditures. In addition, it is inversely associated with both the change of the net working capital and the change of short and long-term debt.

The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Faisal Alnori ◽  
Abdullah Bugshan ◽  
Walid Bakry
Keyword(s):  
Cash Flow ◽  
Capital Expenditure ◽  
Cash Holdings ◽  
Order Theory ◽  
Working Capital ◽  
Pecking Order Theory ◽  
Content Type ◽  
Financial Firms ◽  
Operating Cash Flow ◽  
The Difference

PurposeThe purpose of this study is to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms, for non-financial corporations in the Gulf Cooperation Council (GCC).Design/methodology/approachThe data include all non-financial firms listed in six GCC markets over a period 2005–2019. The IdealRatings database is used to identify Shariah-compliant firms in the GCC. To examine the determinants of cash holdings, a static model is used. To confirm the applicability of the method applied, the Breusch–Pagan Lagrange Multiplier (LM) and Hausman (1978) are used to choose the most efficient and consistent static panel regression.FindingsThe results show that, for Shariah-compliant firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, net working capital and operating cash flow. For non-Shariah-compliant firms, the only relevant determinants of cash holdings are leverage, net working capital and operating cash flow. The findings suggest that the cash holding decisions of Shariah-compliant firms can be best explained using the pecking order theory. This reveals that Shariah-compliant firms use liquid assets as their first financing option, due to the Shariah regulations.Research limitations/implicationsFuture studies may investigate the optimal levels of cash holdings and compare the adjustment speeds toward target cash holdings of both the Shariah-compliant firms and their conventional counterparts.Originality/valueThis study is the first to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms.

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