Additional International Evidence on Corporate Cash Holdings

Abstract

This paper investigates corporate cash holding behaviour in Japan, France, Germany, and the UK using data for 3,989 companies over the period 1983-2000. Our findings reveal that a country's legal structure and ownership structure of firms play a significant role in determining cash holdings. We observe that higher degree of shareholder (creditor) protection is associated with lower (higher) cash holdings and ownership concentration exerts a negative impact on cash levels. Moreover, the dynamic cash holding analysis indicates that firms tend to adjust their cash levels towards a target cash structure. The speed of adjustment of cash holdings for France, Germany and Japan is found to be similar while firms in the UK seem to adjust to the target cash level more quickly.

Keywords: Cash holdings, legal characteristics, ownership structure, endogeneity

JEL Classification: G3, G32