Corporate Cash Holdings in Emerging Markets

Abstract

This paper contributes to studies on corporate liquidity management. It explores the determinants of cash holdings of firms in emerging countries using panel data models. The results indicate that highly liquid firms in emerging countries show one or more of the following characteristics. They have larger size, lower capital expenditure, R&D, net working capital, leverage, and intangible assets. In addition, there is an inverse relationship between growth opportunities and cash holdings, suggesting the presence of a moral hazard problem. Moreover, using the system Generalized Method of Moments (GMM) estimator for dynamic panel data shows that the adjustment speed to the cash target level is not fast. The model also shows the impact of the dependent variable past realizations on corporate cash holdings.

Keywords: Cash Holdings, Emerging Markets, Intangibles, Target Cash Level, System GMM

JEL Classification: G30, G31, G32