Corporate Cash Holdings: Evidence from Switzerland

Financial Markets and Portfolio Management, Vol. 21, No. 3, pp. 293-324, 2007

Posted: 11 Sep 2007

See all articles by Wolfgang Drobetz

Wolfgang Drobetz

University of Hamburg

Matthias Grüninger

affiliation not provided to SSRN

Abstract

This paper investigates the determinants of cash holdings for a comprehensive sample of Swiss non-financial firms between 1995 and 2004. The median Swiss firm holds almost twice as much cash and cash equivalents as the median US or UK firm. Our results indicate that asset tangibility and firm size are both negatively related to corporate cash holdings, and that there is a non-linear relationship between the leverage ratio and liquidity. Dividend payments and operating cash flows are positively related to cash reserves, but we cannot detect a significant relationship between growth opportunities and cash holdings. Most of these empirical findings, but not all of them, can be explained by the transaction costs motive and/or the precautionary motive. Analyzing the corporate governance structures of Swiss firms, we document a non-linear relationship between managerial ownership and cash holdings, indicating an incentive alignment effect and an opposing effect related to increasing risk aversion.

Finally, our results suggest that firms in which the CEO simultaneously serves as the COB hold significantly more cash.

Keywords: Cash holdings, Transaction costs motive, Precautionary motive

JEL Classification: G32

Suggested Citation

Drobetz, Wolfgang and Grüninger, Matthias, Corporate Cash Holdings: Evidence from Switzerland. Financial Markets and Portfolio Management, Vol. 21, No. 3, pp. 293-324, 2007. Available at SSRN: https://ssrn.com/abstract=1013496

Wolfgang Drobetz (Contact Author)

University of Hamburg ( email )

Moorweidenstrasse 18
Hamburg, 20148
Germany

Matthias Grüninger

affiliation not provided to SSRN ( email )

No Address Available

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