Cash holdings are increasing and financial crisis strenghts it

Paulo Alves and Francisco Morais

MPRA Paper from University Library of Munich, Germany

Abstract: The goal of this paper is to study the determinants of firms’ cash holdings and how cash holdings were affected by the financial crisis of 2008. Using data from the period of 1995 to 2014 of non-financial firms, we present almost 265,000 firm-year observations. Our results suggest that cash holdings have a positive relationship with investment set and a negative relationship with liquidity and firm size. Our results also show that cash holdings are influenced by capital market development and banking sector, as well as by inflation. Agency theory determinants demonstrate that firms in common law countries and countries with higher law enforcement still hold higher amounts of cash holdings. Cash holdings post-crisis are higher than pre-crisis and there is a spike in cash holdings during 2009. Our hypothesis for these results are explained by the precautionary motive.

Keywords: Free cash flow theory, Pecking order theory; trade-off theory; Precautionary motive; Financial crisis. (search for similar items in EconPapers)
JEL-codes: G31 G38 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:83799

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