The role of cash holdings during financial crises

Chong-Chuo Chang and Han Yang

Pacific-Basin Finance Journal, 2022, vol. 72, issue C

Abstract: We examine the role of cash holdings during crises, whether the firm with higher cash holdings could quickly recover the operating performance after the financial crisis. We find that if a firm has higher cash holdings, its operating performance recovers more rapidly after financial crisis; these results hold after accounting for endogeneity and various robustness tests. Regarding possible transmission channels, we find that higher cash holdings increase capital expenditures and R&D expenditures, which improves firms' performance more rapidly after financial crisis. Furthermore, differences in financing constraints, corporate governance, and degree of financial development affect the relationship between cash holdings and post-crisis speed of recovery. Thus, firms should judiciously reserve cash holdings in their accounts to safeguard against unexpected emergencies.

Keywords: Cash holdings; Financial crises; Recession; Speed of recovery; Operating performance (search for similar items in EconPapers)
JEL-codes: G01 G30 G32 G33 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:72:y:2022:i:c:s0927538x22000282

DOI: 10.1016/j.pacfin.2022.101733

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