Evidence on the Determinants of Cash Holdings By Private and Public Companies

60 Pages Posted: 15 Mar 2012

See all articles by Sridhar Gogineni

Sridhar Gogineni

The University of Tampa - John H. Sykes College of Business

Scott C. Linn

University of Oklahoma - Michael F. Price College of Business

Pradeep K. Yadav

University of Oklahoma Price College of Business

Date Written: March 14, 2012

Abstract

We examine the determinants of cash holdings in private and public companies. Using a sample of more than 280,000 U.K. private firms and 970,000 firm-year observations from the 1994-2010 period we show that cash holdings in private firms support both the trade-off theory and the financing hierarchy theory. The results indicate that cash holdings in private firms decrease significantly with size, net working capital and leverage. The evidence also shows that private firms that pay dividends hold more cash and that cash holdings increase significantly with capital expenditures and cash flow volatility. We also examine the relation between cash holdings and ownership and management structures in private firms. We find that firms with less severe agency problems hold significantly more cash than private firms associated with more severe agency problems. We also present results for publicly traded companies. We find that both private and public firms adjust cash holdings to target levels but adjustments tend to be greater for private companies.

Keywords: cash holdings, private firms, public firms

JEL Classification: G30, G32, E41

Suggested Citation

Gogineni, Sridhar and Linn, Scott C. and Yadav, Pradeep K., Evidence on the Determinants of Cash Holdings By Private and Public Companies (March 14, 2012). Available at SSRN: https://ssrn.com/abstract=2022689 or http://dx.doi.org/10.2139/ssrn.2022689

Sridhar Gogineni

The University of Tampa - John H. Sykes College of Business ( email )

401 W. Kennedy Blvd.
Tampa, FL 33606-1490
United States
8132533163 (Phone)

Scott C. Linn (Contact Author)

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States
405-325-3444 (Phone)
405-325-1957 (Fax)

Pradeep K. Yadav

University of Oklahoma Price College of Business ( email )

307 W.Brooks, Room 3270 Division of Finance
Norman, OK 73019
United States
4053255591 (Phone)
4053255491 (Fax)

HOME PAGE: http://www.ou.edu/price/finance/faculty/pradeep_yadav.html

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