COVID-19 and Precautionary Corporate Cash Holdings: Evidence from Japan

Tomohito Honda and Iichiro Uesugi

No DP21-2, RCESR Discussion Paper Series from Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University

Abstract: This study examines how listed firms have managed their cash holdings since the outbreak of the COVID-19 crisis, using quarterly data on publicly-traded firms in Japan. After providing an overview of developments in cash holdings since the start of the crisis, we focus on the precautionary motive for corporate cash holdings and examine the role of firms’ cash flow and volatility therein in firms’ cash holdings to find the following: (1) corporate cash holdings have increased rather than decreased since the start of the crisis; (2) an increase in firms’ cash flow has a positive impact on their cash holdings during normal times, and the sensitivity of cash holdings to cash flows was more pronounced during the first three months of the crisis; (3) firms facing higher sales volatility held more cash in the second three-month period following the start of the crisis; and (4) the cash flow sensitivity of financially constrained firms’ cash holdings during the crisis period increased more than that of unconstrained firms. Overall, the COVID-19 crisis has had a substantial impact on corporate cash management strategies and the results are consistent with the precautionary motive theory for cash holdings.

Keywords: Cash holdings; Precautionary motive; COVID-19 (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2021-02
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (2)

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