Why Do Firms Hold Cash? Evidence from Emu Countries

Posted: 20 Jun 2004

See all articles by Miguel A. Ferreira

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

António Vilela

University Institute of Lisbon (IUL) - School of Business

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Abstract

This paper investigates the determinants of corporate cash holdings in EMU countries. Our results suggest that cash holdings are positively affected by the investment opportunity set and cash flows and negatively affected by asset's liquidity, leverage and size. Bank debt and cash holdings are negatively related, which supports that a close relationship with banks allows the firm to hold less cash for precautionary reasons. Firms in countries with superior investor protection and concentrated ownership hold less cash, supporting the role of managerial discretion agency costs in explaining cash levels. Capital markets development has a negative impact on cash levels, contrary to the agency view.

Suggested Citation

Ferreira, Miguel Almeida and Vilela, António, Why Do Firms Hold Cash? Evidence from Emu Countries. European Financial Management, Vol. 10, No. 2, pp. 295-319, June 2004. Available at SSRN: https://ssrn.com/abstract=554955

Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

António Vilela

University Institute of Lisbon (IUL) - School of Business ( email )

Complexo INDEG/ISCTE
Av. Prof. Anibal Bettencourt
1600-189 Lisboa, 1649-026
Portugal

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