Cash Holdings Policy: a Dynamic Analysis of Brazilian Companies

Fadwa Muhieddine Dahrouge () and Richard Saito ()
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Fadwa Muhieddine Dahrouge: Instituto Nacional de Pesquisas Espaciais
Richard Saito: Fundação Getulio Vargas

Brazilian Review of Finance, 2013, vol. 11, issue 3, 343-373

Abstract: 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.

Keywords: cash holdings; costs of adjustments; dynamic trade-off; liquid assets; working capital (search for similar items in EconPapers)
JEL-codes: G30 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:11:y:2013:i:3:p:343-373

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