Corporate Cash Holdings: An Empirical Investigation of UK Companies
41 Pages Posted: 13 Mar 2002
This paper investigates the empirical determinants of corporate cash holdings for a sample of UK firms over the period 1984-1999. We present evidence of the significant relation between managerial ownership and cash holdings. The results also suggest that the way in which managerial ownership exerts influence on cash holding decisions differs between firms with ultimate controllers and those that are widely-held. The results reveal that growth options of firms, cash flows, liquid assets, leverage and bank debt are important in determining cash holdings. In contrast, there is much less evidence that larger firms hold less cash. Our analysis also suggests that unobserved firm heterogeneity and endogeneity are crucial in analysing the cash structure of firms.
Keywords: Cash holdings; Ownership structure; Firm heterogeneity; Panel data
JEL Classification: G3, G32
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