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Cash holdings and SME performance in Europe: the role of firm-specific and macroeconomic moderators

Maurizio La Rocca (), Raffaele Staglianò (), Tiziana Rocca (), Alfio Cariola () and Ekaterina Skatova ()
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Raffaele Staglianò: Montpellier Business School, Montpellier Research in Management
Tiziana Rocca: University of Messina
Alfio Cariola: University of Calabria
Ekaterina Skatova: University of Calabria

Small Business Economics, 2019, vol. 53, issue 4, No 12, 1078 pages

Abstract: Abstract For the first time, this paper examines the way in which cash holdings affect firm operating performance in a wide sample of European small and medium-sized enterprises (SMEs). Our results suggest that cash holdings have a positive effect on operating performance, supporting the relevance of precautionary savings motive for SMEs. Maintaining a buffer of money on hand, ready for use in any contingency, has a relevant positive effect that overcomes potential opportunistic problems. Moreover, we find that firm-specific characteristics, such as debt, size, age, growth opportunities, and ownership concentration, moderate our baseline relationship. In addition, the study also demonstrates that cash holdings have a stronger positive effect on operating performance in poorer institutional contexts. Notably, we also find that the stock of cash had a relevant role in supporting firm performance during the recent global financial crisis. Finally, we report additional analyses to corroborate our baseline results.

Keywords: Cash holdings; SMEs; Firm operating performance; Institutional context (search for similar items in EconPapers)
JEL-codes: G32 G33 L26 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s11187-018-0100-y

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