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Cash holdings, firm size and access to external finance. Evidence for the euro area

Carmen Martínez-Carrascal ()
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Carmen Martínez-Carrascal: Banco de España

Authors registered in the RePEc Author Service: Carmen Martinez Carrascal

No 1034, Working Papers from Banco de España, Working Papers Homepage

Abstract: This paper investigates the empirical determinants of corporate cash holdings in the euro area as a function of firm size. The results show that there are significant differences in investment in liquid assets for firms of different size. More specifically, liquid assets for smaller firms in the euro area are more strongly linked to firm cash flow and its variability than cash holdings for larger firms, possibly as a result of their more restricted access to external funds and the need to provide for future investment needs. Likewise, results show that the link between cash holdings and tangible assets, which facilitate access to external finance, is stronger for small and medium-sized firms than for large firms. In contrast, cash holding sensitivity to variations in the spread between the return on liquid assets and alternative uses of these funds (debt repayment, in the empirical specification presented in this paper) is higher for larger firms, something that might be linked to their better access to capital markets and their lower need to keep a cash buffer for precautionary reasons.

Keywords: cash holdings; financing constraints; panel data (search for similar items in EconPapers)
JEL-codes: C23 E41 G31 G32 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-11
New Economics Papers: this item is included in nep-bec and nep-eec
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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/10/Fic/dt1034e.pdf First version, Noviembre 2010 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1034

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