Cash Holdings, Firm Size and Access to External Finance - Evidence for the Euro Area

25 Pages Posted: 19 Nov 2010

Date Written: November 18, 2010


This paper investigates the empirical determinants of corporate cash holdings in the euro area as a function of firm size. The results show that there are significant differences in investment in liquid assets for firms of different size. More specifically, liquid assets for smaller firms in the euro area are more strongly linked to firm cash flow and its variability than cash holdings for larger firms, possibly as a result of their more restricted access to external funds and the need to provide for future investment needs. Likewise, results show that the link between cash holdings and tangible assets, which facilitate access to external finance, is stronger for small and medium-sized firms than for large firms. In contrast, cash holding sensitivity to variations in the spread between the return on liquid assets and alternative uses of these funds (debt repayment, in the empirical specification presented in this paper) is higher for larger firms, something that might be linked to their better access to capital markets and their lower need to keep a cash buffer for precautionary reasons.

Keywords: Cash Holdings, Financing Constraints, Panel Data

JEL Classification: C23, E41, G31, G32

Suggested Citation

Martinez-Carrascal, Carmen, Cash Holdings, Firm Size and Access to External Finance - Evidence for the Euro Area (November 18, 2010). Banco de Espana Working Paper No. 1034, Available at SSRN: or

Carmen Martinez-Carrascal (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014

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