Multinationals and cash holdings

Nuno Fernandes and Halit Gonenc

Journal of Corporate Finance, 2016, vol. 39, issue C, 139-154

Abstract: This study examines the relationship between cash holdings and the level of multinationality for a large international sample of firms from 40 countries. We consider two dimensions of diversification, geographical and industrial, and find a direct negative relation between both geographic and industrial diversification and cash holdings. This finding is consistent with the diversification argument that multinationals' headquarters plan their investment and cash needs in an efficient way across geographically diversified operations. We further examine whether there is a trade-off between two diversification strategies. The evidence shows that the effect of industrial diversification is negligible once firms are geographically diversified. By performing country-level tests, we also document some new evidence of international differences for the impacts of tax systems, investor protection, political stability, stock market development, economic size and growth, and national culture on the separate and joint effects of geographic and industrial diversifications.

Keywords: Cash holdings; Multinationals; Diversification; Working capital; Financial markets (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:39:y:2016:i:c:p:139-154

DOI: 10.1016/j.jcorpfin.2016.06.003

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