What Causes Differences in Cash Holdings between Listed and Unlisted Firms Around the World?

Abstract:     
The main body of literature on firms’ cash holdings focuses on listed firms. This paper extends the scope by comparing the cash holdings of both listed and unlisted firms and assessing the causes for differences between the two types of firms. The listing of a firm can have major effects on cash holdings. First, a listing improves the firm’s financing opportunities and this may reduce the need for cash. Second, the listing may improve asset opportunities for a firm, which means that listed firms may hold more cash for transaction and precautionary motives. Third, agency costs may influence listed firms to under-hoard or over-hoard cash in comparison to unlisted firms. With over-hoarding managers like the flexibility of cash, while with under-hoarding they do not dare to show excess cash holdings. This paper finds that listed firms have cash ratios that are significantly higher than those of unlisted firms. This means that improved asset opportunities dominate the effects of improved financing opportunities, or that managers hoard excessively. Because the marginal contribution of cash to net income is on average larger in listed firms, over-hoarding can be ruled out. Therefore, improved asset opportunities are the major reason for higher cash ratios in listed firms.

Number of Pages in PDF File: 48

Keywords: cash holdings, unlisted firms, listed firms, financing opportunities, asset opportunities, under-hoarding

JEL Classification: G34, G31, G15, L22, L6

working papers series