The determinants of corporate cash holdings levels: evidence from selected South African retail firms
-
DOIhttp://dx.doi.org/10.21511/imfi.14(2).2017.08
-
Article InfoVolume 14 2017, Issue #2, pp. 79-93
- Cited by
- 1766 Views
-
2533 Downloads
This work is licensed under a
Creative Commons Attribution-NonCommercial 4.0 International License
With corporate cash holdings on the rise, stakeholders need to know, among other things, what informs the companies’ cash holding policies and whether there are any benefits to be derived from piling up these cash reserves. Studies conducted in developed countries have identified the following as determinants of corporate cash holdings: firm size, growth opportunities, liquid asset substitutes, capital expenditure, leverage, dividend payments, cash flows and cash flow volatility. Few studies have focused on what drives firms’ cash holdings behavior in emerging economies. This study, the first of its kind, investigated the determinants of corporate cash holdings in the South African retail industry. The paper used panel data analysis to test the relationships between cash holdings level and the identified determinant factors. The authors found evidence that liquid asset substitutes, capital expenditure, dividend payments and cash flow volatility significantly influence the cash holdings levels of retail firms listed on the Johannesburg Stock Exchange.
- Keywords
-
JEL Classification (Paper profile tab)G32, M41, O55
-
References52
-
Tables4
-
Figures0
-
- Table 1. Description of study variables
- Table 2. Likelihood ratio test
- Table 3. Hausman test
- Table 4. Comparison of results
-
- Afza, T., & Adnan, S. (2007). Determinants of corporate cash holdings: A case study of Pakistan. Proceedings of Singapore Economic Review Conference (SERC) 01.
- Ali, A., & Yousaf, S. (2013). Determinants of Cash holding in German Market. IOSR Journal of Business and Management (IOSR-JBM), 12(6), 28-34.
- Ali, S., Ullah, M., & Ullah, N. (2016). Determinants of Corporate Cash Holdings: A Case of Textile Sector in Pakistan. Retrieved from https://papers. ssrn. com/sol3/ papers.cfm?abstract_id=2728200
- Almeida, H., Campello, M., & Weisbach, M. S. (2004). The cash flow sensitivity of cash. The Journal of Finance, 59(4), 1777-1804.
- Al-Najjar, B. (2013). The financial determinants of corporate cash holdings: Evidence from some emerging markets. International Business Review, 22(1), 77-88.
- Al‐Najjar, B., & Belghitar, Y. (2011). Corporate cash holdings and dividend payments: evidence from simultaneous analysis. Managerial and Decision Economics, 32(4), 231-241.
- Al Zoubi, T. (2013). Corporate cash-holding decisions: Amman stock exchange. Doctoral dissertation: School of Social Sciences Theses. Retrieved from http://v-scheiner. brunel. ac. uk/bitstream/2438/7360/1/ FulltextThesis. pdf (last accessed 24 April 2017).
- Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do US firms hold so much more cash than they used to? The Journal of Finance, 64(5), 1985-2021.
- Bigelli, M., & Sánchez-Vidal, J. (2012). Cash holdings in private firms. Journal of Banking & Finance, 36(1), 26-35.
- Boubaker, S., Derouiche, I., & Nguyen, D. K. (2015). Does the board of directors affect cash holdings? A study of French listed firms. Journal of Management & Governance, 19(2), 341-370.
- D’Mello, R., Krishnaswami, S., & Larkin, P. J. (2008). Determinants of corporate cash holdings: Evidence from spin-offs. Journal of Banking & Finance, 32(7), 1209- 1220.
- Daher, M. (2010). The Determinants of Cash Holdings in UK Public and Private Firms. Dissertation, Lancaster University Business School, Lancaster University.
- Đinh Phạm Anh, T. (2013). Determinants of corporate cash holdings: A study of listed manufacturing companies in Vietnam. Dissertation, Ho Chi Minh City International University.
- Dittmar, A., & Mahrt-Smith, J. (2007). Corporate governance and the value of cash holdings. Journal of Financial Economics, 83(3), 599-634.
- Dittmar, A., Mahrt-Smith, J., & Servaes, H. (2003). International corporate governance and corporate cash holdings, Journal of Financial and Quantitative Analysis, 38(01), 111-133.
- Drobetz, W., & Grüninger, M. C. (2007). Corporate cash holdings: Evidence from Switzerland. Financial Markets and Portfolio Management, 21(3), 293-324.
- Faulkender, M., & Wang, R. (2006). Corporate financial policy and the value of cash. The Journal of Finance, 61(4), 1957-1990.
- Ferreira, M. A., & Vilela, A. S. (2004). Why do firms hold cash? Evidence from EMU countries. European Financial Management, 10(2), 295-319.
- Fischer, M. L., Marsh, T., & Brown, T. A. (2014). Cash Holdings of S & P Firms Over the Past Decade. Accounting and Finance Research, 3(3), 143-150.
- Foley, C. F., Hartzell, J. C., Titman, S., & Twite, G. (2007). Why do firms hold so much cash? A tax-based explanation. Journal of Financial Economics, 86(3), 579-607.
- Gill, A., & Shah, C. (2012). Determinants of corporate cash holdings: Evidence from Canada. International Journal of Economics and Finance, 4(1), 70-79.
- Gomes, M. D. S. (2012). The financial determinants of corporate cash holdings: evidence from growing firms. Dissertation (Universidade da Beira Interior).
- Grinstein, Y., Weinbaum, D., & Yehuda, N. (2008). Perks and excess: Evidence from the new executive compensation disclosure rules. Unpublished working paper, Cornell University. Johnson School Research Paper Series: 04-09.
- Guney, Y., Ozkan, A., & 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.
- Hardin III, W. G., Highfield, M. J., Hill, M. D., & Kelly, G. W. (2009). The determinants of REIT cash holdings. The Journal of Real Estate Finance and Economics, 39(1), 39-57.
- Harford, J. (1999). Corporate cash reserves and acquisitions. The Journal of Finance, 54(6), 1969- 1997.
- Iskandar-Datta, M. E., & Jia, Y. (2014). Investor protection and corporate cash holdings around the world: new evidence. Review of Quantitative Finance and Accounting, 43(2), 245-273.
- Islam, S. (2012). Manufacturing Firms’ Cash Holding Determinants: Evidence from Bangladesh. International Journal of Business and Management, 7(6), 172-184.
- Jensen, M. C. (1986). Agency cost of free cash flow, corporate finance, and takeovers. Corporate Finance, and Takeovers. American Economic Review, 76(2), 323-329.
- Kariuki, S. N., Namusonge, G. S., and Orwa, G. O. (2015). Determinants of corporate cash holdings: evidence from private manufacturing firms in Kenya. International Journal of Advanced Research in Management and Social Sciences, 4(6), 15-33.
- Kim, C., Mauer, D. C., & Sherman, A. E. (1998). The determinants of corporate liquidity: Theory and evidence. Journal of Financial and Quantitative Analysis, 33(3), 335-359.
- Kim, J., Kim, H., & Woods, D. (2011). Determinants of corporate cashholding levels: An empirical examination of the restaurant industry. International Journal of Hospitality Management, 30(3), 568-574.
- Mikkelson, W. H., & Partch, M. M. (2003). Do persistent large cash reserves hinder performance? Journal of Financial and Quantitative Analysis, 38(02), 275-294.
- Miller, M. H., & Orr, D. (1966). A Model of the Demand for Money by Firms. The Quarterly Journal of Economics, 80(3), 413-435.
- Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175.
- Myers, S. C., & 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.
- Ogundipe, L. O., Ogundipe, S. E., & Ajao, S. K. (2012). Cash holding and firm characteristics: Evidence from Nigerian emerging market. Journal of Business Economics and Finance, 1(2), 45-58.
- Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (2001). Corporate cash holdings. Journal of Applied Corporate Finance, 14(1), 55-67.
- Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46.
- Ozkan, A., & Ozkan, N. (2004). Corporate cash holdings: An empirical investigation of UK companies. Journal of Banking and Finance, 28(9), 2103-2134.
- Riddick, L. A., & Whited, T. M. (2009). The corporate propensity to save. The Journal of Finance, 64(4), 1729-1766.
- Saddour, K. (2006). The determinants and the value of cash holdings: Evidence from French firms. CEREG, 1-33.
- Subramaniam, V., Tang, T. T., Yue, H., & Zhou, X. (2011). Firm structure and corporate cash holdings. Journal of Corporate Finance, 17(3), 759-773.
- Thanatawee, Y. (2011). Life-cycle theory and free cash flow hypothesis: Evidence from dividend policy in Thailand. International Journal of Financial Research, 2(2), 52-60.
- Tong, Z. (2006). Risk reduction as a CEO’s motive for corporate cash holdings. Retrieved from Retrieved from SSRN 1031087 (accessed 12 November 2016).
- Tsuji, C. (2011). An international survey of the evidence of the pecking order theory of corporate financing. Business and Economic Research, 1(1).
- Uyar, A., & Kuzey, C. (2014). Determinants of corporate cash holdings: evidence from the emerging market of Turkey. Applied Economics, 46(9), 1035-1048.
- Venkiteshwaran, V. (2011). Partial adjustment toward optimal cash holding levels, Review of Financial Economics, 20(3), 113-121.
- Wang, M. (2015). Corporate cash holdings and adjustment behavior in Chinese firms: An empirical analysis using Generalized Method of Moments. Australasian Accounting, Business, and Finance Journal, 9(4), 20-37.
- Wasiuzzaman, S. (2014). Analysis of corporate cash holdings of firms in Malaysia. Journal of Asia Business Studies, 8(2), 118-135.
- Yu, Y. Lee, Y., & Fok, RC. (2015). Speculative motive for holding cash and high-interest entrusted loans. Retrieved from SSRN 2649970.
- Zhang, Q. 2016. Corporate governance, institutional investors, and firm performance: A comparative study of South Africa and China (Doctoral dissertation, Stellenbosch: Stellenbosch University).