Corporate Cash Holdings: Causes and Consequences

Posted: 12 May 2017

See all articles by Kevin Amess

Kevin Amess

Nottingham University Business School

Sanjay Banerji

University of Nottingham

Athanasios Lampousis

Nottingham University Business School

Date Written: March 31, 2015

Abstract

The considerable growth in corporate cash holdings around the world has prompted scholarly interest. Consequently, there is now a large academic literature examining cash holdings and their impact on corporate outcomes and firm values. This article reviews and synthesizes the literature to offer insight into two primary motives to hold cash, namely a precautionary and an agency motive. It first presents a stylized model that explores the trade-off in holding cash between these two motives and then examines empirical evidence to determine how existing theories are supported by the data. In addition, we examine the effectiveness of a variety of corporate governance devices in curtailing cash holdings and also the extent to which these devices offer investors’ confidence that cash will not be wasted. Finally, after documenting that large cash holdings are an international phenomenon, we review cross-country studies and give particular attention to two key emerging economies: China and India.

Keywords: cash holdings, liquidity, corporate governance

JEL Classification: G30, G32

Suggested Citation

Amess, Kevin and Banerji, Sanjay and Lampousis, Athanasios, Corporate Cash Holdings: Causes and Consequences (March 31, 2015). International Review of Financial Analysis, Vol. 42, 2015. Available at SSRN: https://ssrn.com/abstract=2966766

Kevin Amess (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

HOME PAGE: http://www.nottingham.ac.uk/business/lizka1.html

Sanjay Banerji

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Athanasios Lampousis

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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