Cash Holdings in Finnish SMEs
23 Pages Posted: 6 Mar 2007
Date Written: January 3, 2007
Abstract
This paper examines the determinants of cash holdings in a sample of Finnish small and micro firms. Our results suggest that lending relationships and the share of managerial ownership both have a significant impact on cash holdings. The results on the relationship lending variables indicate that using multiple banks reduces the level of cash holdings. This suggests that firms with not so tight relationships with their banks have easier access to funds and therefore less need for cash holdings. The results also suggest that a similar effect can be achieved by building long-term bank-borrower relationships in cases where the firm has outstanding loans from one bank at the most. The results on managerial ownership variables indicate that the relationship between cash holdings and managerial ownership is cubic but that this result only holds for the larger firms in the sample and for the firms that borrow from two or more banks. Furthermore, our results show that larger firms, firms facing financial constraints and firms with high debt to assets ratios all hold more cash.
Keywords: Cash holdings, Ownership structure, Relationship lending
JEL Classification: G3
Suggested Citation: Suggested Citation
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