Elena Alexandra NENU; Georgeta VINTILĂ

doi:10.1515/saeb-2017-0019

Authors

Elena Alexandra NENU
Georgeta VINTILĂ

DOI:

https://doi.org/10.1515/saeb-2017-0019

Keywords:

cash holdings, liquidity, leverage, cash flow

Abstract

Worldwide corporate cash holdings have significantly increased and have become an important tool for managers. This study explores the factors that influence firms’ behavior regarding cash holdings and the signal that financial conservatism is sending to potential investors. Our data consists in annual observations collected through the Reuters Eikon platform. It includes companies listed on the Bucharest Stock Exchange, the investigated period being 2005-2014. The econometric analysis employs multivariate regression for an unbalanced panel data, using the OLS technique. The results show a positive correlation of cash holdings with the value registered by this indicator in the previous period, fact that might be interpreted as an attempting of the companies to maintain a target level of cash. Also, the results showed a non-linear relationship between leverage and cash holdings, while the tangible assets determine a negative correlation. As regards firm size and ownership concentration, the correlations were not statistically validated.

JEL Codes - C23; G31; L25

References

Al-Najjar, B., 2013. The financial determinants of corporate cash holdings: Evidence from some emerging markets. International Business Review, 22(1), 77-88. doi: http://dx.doi.org/10.1016/j.ibusrev.2012.02.004

Al-Najjar, B., and Belghitar, Y., 2011. Corporate cash holdings and dividend payments: Evidence from simultaneous analysis. Managerial and Decision Economics, 32(4), 231-241. doi: http://dx.doi.org/10.1002/mde.1529

Almeida, H., and Campello, M., 2007. Financial constraints, asset tangibility, and corporate investment. Review of Financial Studies, 20(5), 1429-1460. doi: http://dx.doi.org/10.1093/rfs/hhm019

Almeida, H., Campello, M., and Weisbach, M. S., 2004. The cash flow sensitivity of cash. The Journal of Finance, 59(4), 1777-1804. doi: http://dx.doi.org/10.1111/j.1540-6261.2004.00679.x

Amess, K., Banerji, S., and Lampousis, A., 2015. Corporate cash holdings: Causes and consequences. International Review of Financial Analysis, 42, 421-433. doi: http://dx.doi.org/10.1016/j.irfa.2015.09.007

Baskin, J., 1987. Corporate liquidity in games of monopoly power. The Review of Economics and Statistics, 69(2), 312-319. doi: http://dx.doi.org/10.2307/1927239

Bates, T. W., Kahle, K., and Stulz, R., 2009. Why do U.S. firms hold so much more cash than they used to? The Journal of Finance, 64(5), 1985-2021. doi: http://dx.doi.org/10.1111/j.1540-6261.2009.01492.x

Belsley, D. A., 1976. Multicollinearity: Diagnosing its presence and assessing the potential damageit causes least-squares estimation. NBER Working Paper Series, 154. https://core.ac.uk/download/files/153/6645718.pdf.

Bennedsen, M., and Wolfenzon, D., 2000. The balance of power in closely held corporations. Journal of Financial Economics, 58(1-2), 113-139. doi: http://dx.doi.org/10.1016/S0304-405X(00)00068-4

Chiriac, S. C. V., 2015. Considerations regarding the evolution of the liquidity and solvency indicators of the most important Romanian HORECA companies in the period 2010-2013. Procedia Economics and Finance, 32, 833-840. doi: http://dx.doi.org/10.1016/S2212-5671(15)01527-0

Chudson, W., 1945. The Pattern of Corporate Financial Structure. New York: National Bureau of Economic Research.

Dittmar, A., Mahrt-Smith, J., and Servaes, H., 2003. International corporate governance and corporate cash holdings. Journal of Financial and Quantitative Analysis, 38(1), 111-133. doi: http://dx.doi.org/10.2307/4126766

Fazzari, S. M., Hubbard, R. G., and Petersen, B. C., 2000. Financial constraints and corporate investment: response to Kaplan and Zingales. NBER Working Paper Series, 5642.

Ferreira, M., and Vilela, A., 2004. Why do firms hold cash? Evidence from EMU countries. European Financial Management, 10(2), 295-319. doi: http://dx.doi.org/10.1111/j.1354-7798.2004.00251.x

Frank, M. Z., and Goyal, V. K., 2009. Capital structure decisions: Which factors are reliably important? Financial Management, 38(1), 1-37. doi: http://dx.doi.org/10.1111/j.1755-053X.2009.01026.x

Georgescu, I. E., and Chiriac, I., 2012. The analysis of the influential factors of the absorbing companies' performance. Analele ştiinţifice ale Universităţii "Al.I. Cuza" din Iaşi. Ştiinţe economice / Scientific Annals of the Alexandru Ioan Cuza University of Iasi. Economic Sciences, 59(1), 3-25. doi: http://dx.doi.org/10.2478/v10316-012-0001-1

Gerschenkron, A., 1962. Economic Backwardness in Historical Perspective. Cambridge. Mass.: Belknap Press of Harvard University Press.

Gilchrist, S., and Himmelberg, C., 1995. Evidence on the role of cash flow for investment. Journal of Monetary Economics, 36(3), 541-572. doi: http://dx.doi.org/10.1016/0304-3932(95)01223-0

Gitman, L. J., 1974. Estimating corporate liquidity requirements: A simplified approach. Financial Review, 9(1), 79-88. doi: http://dx.doi.org/10.1111/j.1540-6288.1974.tb01453.x

Guney, Y., Ozkan, A., and Ozkan, N., 2007. International evidence on the non-linear impact of leverage on corporate cash holdings. Journal of Multinational Financial Management, 17(1), 45-60. doi: http://dx.doi.org/10.1016/j.mulfin.2006.03.003

Hall, T., Mateus, C., and Mateus, I. B., 2014. What determines cash holdings at privately held and publicly traded firms? Evidence from 20 emerging markets. International Review of Financial Analysis, 33, 104-116. doi: http://dx.doi.org/10.1016/j.irfa.2013.11.002

Jensen, M., 1986. Agency costs of the free cash flow, corporate finance and takeovers. The American Economic Review, 76, 323-329.

Jensen, M., and Meckling, W., 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. doi: http://dx.doi.org/10.1016/0304-405X(76)90026-X

Kalcheva, I., and Lins, K. V., 2007. International evidence on cash holdings and expected managerial agency problems. Review of Financial Studies, 20(4), 1087-1112. doi: http://dx.doi.org/10.1093/rfs/hhm023

Khurana, I. K., Martin, X., and Pereira, R., 2006. Financial development and the cash flow sensitivity of cash. Journal of Financial and Quantitative Analysis, 41(04), 787-807. doi: http://dx.doi.org/10.1017/S0022109000002647

Kling, G., Paul, S. Y., and Gonis, E., 2014. Cash holding, trade credit and access to short-term bank finance. International Review of Financial Analysis, 32, 123-131. doi: http://dx.doi.org/10.1016/j.irfa.2014.01.013

La Porta, R., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R., 2000. Investor protection and corporate governance. Journal of Financial Economics, 58(1-2), 3-27. doi: http://dx.doi.org/10.1016/S0304-405X(00)00065-9

Laptes, R., and Popa, A. F., 2013. The dynamics of the Romanian financial reporting. Analele ştiinţifice ale Universităţii "Al.I. Cuza" din Iaşi. Ştiinţe economice / Scientific Annals of the Alexandru Ioan Cuza University of Iasi. Economic Sciences, 60(1), 1-19. doi: http://dx.doi.org/10.2478/aicue-2013-0010

Meltzer, A. H., 1963. The demand for money: A cross-section study of business firms. The Quarterly Journal of Economics, 77(3), 405-422. doi: http://dx.doi.org/10.2307/1879569

Melyk, L. Z., and Birita, A., 1974. Comprehensive liquidity index as a measure of corporate liquidity. Scientific and Behavioral Foundation of decision sciences, 162-165.

Molinari, M., 2013. Joint analysis of the non-linear debt-growth nexus and cash-flow sensitivity: New evidence from Italy. Structural Change and Economic Dynamics, 24, 34-44. doi: http://dx.doi.org/10.1016/j.strueco.2012.11.003

Munteanu, I., 2012. Bank liquidity and its determinants in Romania. Procedia Economics and Finance, 3, 993-998. doi: https://doi.org/10.1016/S2212-5671(12)00263-8

Myers, S. C., and Majluf, N. S., 1984. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221. doi: http://dx.doi.org/10.1016/0304-405X(84)90023-0

Opler, T., Pinkowitz, L., Stulz, R., and Williamson, R., 1999. The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46. doi: http://dx.doi.org/10.1016/S0304-405X(99)00003-3

Ozkan, A., and Ozkan, N., 2004. Corporate cash holdings: An empirical investigation of UK companies. Journal of Banking & Finance, 28(9), 2103-2134. doi: http://dx.doi.org/10.1016/j.jbankfin.2003.08.003

Roman, A., and Sargu, A. C., 2014. Banks liquidity risk analysis in the new European Union member countries: Evidence from Bulgaria and Romania. Procedia Economics and Finance, 15, 569-576. doi: https://doi.org/10.1016/S2212-5671(14)00512-7

Shulman, J. M., and Cox, R. A., 1985. An integrative approach to working capital management. Journal of Case Management, 5(6), 64-68.

Stiglitz, J. E., 1974. On the irrelevance of corporate financial Policy. The American Economic Review, 64(6), 851-866.

Sumedrea, S., 2015. How the Companies did Structure their Capital to Surpass Crises? Procedia Economics and Finance, 27, 22-28. doi: http://dx.doi.org/10.1016/S2212-5671(15)00967-3

Vatavu, D., 2015. The impact of capital structure on financial performance in Romanian listed companies. Procedia Economics and Finance, 32, 1314-1322. doi: http://dx.doi.org/10.1016/S2212-5671(15)01508-7

Vogel, R. C., and Maddala, G. S., 1967. Cross-section estimates of liquid asset demand by manufacturing corporations. The Journal of Finance, 22(4), 557-575. doi: http://dx.doi.org/10.1111/j.1540-6261.1967.tb00292.x