Corporate Cash Holdings and Exposure to Macroeconomic Conditions

Ki, YoungHa; Adhikari, Ramesh

doi:10.3390/ijfs10040105

Cited by 6 publications

(8 citation statements)

References 45 publications

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“…They report that Indian firms slowly adjust their liquidity to target cash reserves due to market frictions. Ki and Mukherjee (2018) contend that macroeconomic variables affect the adjustment speed of cash levels as these variables have direct effect on the costs and benefits of cash holdings.…”

Section: Theories and Empirical Hypothesesmentioning

confidence: 99%

Do macroeconomic conditions affect corporate cash holdings and cash adjustment dynamics? Evidence from GCC countries

Guizani¹,

Ajmi

2021

IJOEM

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PurposeThis study aims to investigate the influence of macroeconomic conditions on corporate cash holdings in terms of their influence on the level of cash and the speed of adjustment of cash to target levels in the Gulf Cooperation Council countries (GCC).Design/methodology/approachThe study employs both static and dynamic regression analyses considering a sample of 2,878 firm-year observations drawn from stock markets in GCC countries over the 2010–2018 period.FindingsConsistent with the precautionary motive, the results show that GCC firms tend to accumulate cash reserves in weak economic periods. Evidence also reveals that the estimated adjustment coefficients from dynamic panel models show that GCC firms adjust more slowly toward their target cash ratio in periods of unfavorable economic conditions.Practical implicationsThis study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering financial constraints imposed by macroeconomic conditions. In particular, managers should pay more attention to periods of credit crunch and weak economic conditions in which firms may be exposed to greater bankruptcy risks. For policymakers and regulators, this study may be useful in assessing the effect of macroeconomic factors on firm's cash holding decision. Therefore, in an effort to increase the supply of external financing available to firms, policymakers may devise investment friendly environment by controlling macroeconomic factors.Originality/valueThis paper offers some insights on the macro determinants of cash holdings by investigating emerging economies. It explores the role of macroeconomic conditions on corporate cash holdings in terms of their influence on the costs of external funds and financial constraints.

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Section: Theories and Empirical Hypothesesmentioning

confidence: 99%

Do macroeconomic conditions affect corporate cash holdings and cash adjustment dynamics? Evidence from GCC countries

Guizani¹,

Ajmi

2021

IJOEM

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“…Although the literature suggests that internal factors have a greater impact on firm performance than external factors [27], it is important to recognise the influence of factors from the environment surrounding the company [28].…”

Section: Literature Review and Research Questionsmentioning

confidence: 99%

“…Other research in this area indicates that the level of cash holdings is dependent on the prevailing macroeconomic situation and the associated uncertainty in both developed and emerging economies [28,[43][44][45]. A research gap can be identified in relation to European emerging markets, such as Poland, where the impact of macroeconomic data on cash holdings is poorly studied.…”

Section: Literature Review and Research Questionsmentioning

confidence: 99%

Impact of Macroeconomic Factors on Financial Liquidity of Companies: A Moderation Analysis

Nowicki,

Ratajczak,

Szutowski

2024

Sustainability

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The objective of this study was to examine the potential moderating effects of the relationship between macroeconomic variables and the financial liquidity of enterprises. Given the significance of liquidity for companies and the profound impact of the macroeconomic environment, a research gap was identified in relation to the limited number of studies investigating the influence of macroeconomic factors on corporate liquidity. Additionally, the limited scope of companies surveyed in this area, in terms of sector, size, capital market presence, and the limited range of macroeconomic variables examined were notable. Most importantly, the absence of studies examining moderators of the relationship between macroeconomic factors and liquidity was a significant concern. To this end, two main research questions were formulated. First, what factors moderate the relationship between macroeconomic variables and the financial liquidity of companies? Second, what is the nature of the moderating effects on the relationship between macroeconomic variables and corporate financial liquidity? This research employed panel data analysis on an unbalanced panel comprising 5327 Polish enterprises spanning from 2003 to 2021. The primary analytical technique utilised was linear regression (pooled OLS) with robust standard errors clustered at the firm level. The main results of this study indicate that: (1) debt level, profitability, and the fixed assets to total assets ratio are significant moderators of some of the relationships between macroeconomic variables and corporate liquidity; (2) debt level moderates the relationship between the ratio of internal expenditures on research and development to GDP and financial liquidity, as well as the relationship between inflation rate and liquidity; the relationship is statistically significant and positive only for those enterprises with above-median debt levels; (3) profitability moderates the relationship between the employment coefficient and financial liquidity, as well as the relationship between the inflation rate and liquidity; in the high-profitability group, those relationships are positive, whereas in the low-profitability group, they are negative; (4) the ratio of fixed assets to total assets moderates the relationship between the money supply and corporate financial liquidity; for enterprises with low asset flexibility, there is a negative relationship between the money supply and financial liquidity; conversely, for enterprises with high asset flexibility, there is a positive relationship between the money supply and financial liquidity; (5) the rationale behind these findings can be derived from capital structure theory and financial analysis theory. The results of this study represent a step towards a more comprehensive understanding of the relationship between the macro environment and corporate liquidity, as well as the factors that moderate this relationship from both a microeconomic and a macroeconomic perspective. The findings of this study may also inform policy decisions governing the corporate sector due to a more nuanced understanding of the relationships between macroeconomic factors and corporate liquidity.

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“…In particular, in unfavorable macroeconomic conditions, firms are inclined to hold more cash when external funding becomes costly. In particular, firms with high investment and growth opportunities seek to build cash holdings as a safeguard against adverse economic shocks (Faulkender and Wang 2006;Han and Qiu 2007;Denis and Sibilkov 2010;Ki and Adhikari 2022). Furthermore, the precautionary motive is associated with changes in cash holdings based on the level of macroeconomic uncertainty.…”

Section: Introductionmentioning

confidence: 99%

“…Furthermore, the precautionary motive is associated with changes in cash holdings based on the level of macroeconomic uncertainty. Studies by Baum et al (2006), Hackbarth et al (2006), Gao et al (2017), and Ki and Adhikari (2022) suggest that higher macroeconomic uncertainty leads to higher cash levels due to the increased unpredictability of future cash flows. Due to the aforementioned reasons, firms have been accumulating a larger volume of cash holdings.…”

Section: Introductionmentioning

confidence: 99%

Cash Holdings and Marginal Value of Cash across Different Age Groups of U.S. Firms

Ki,

Adhikari

2023

JRFM

Self Cite

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Using a sample of 11,365 unique US firms over the period 1966 to 2021, this study examines the relationship between the age of a firm and its cash holdings. We categorize firms as young, mature, or old based on their age or years of operation. Our results show that firm age is one of the important determinants of cash holdings and that managers adjust cash holdings in response to changing financial needs and risks as firms age. We find that young firms tend to hold higher levels of cash than more established firms and that the marginal value of cash holdings is higher for younger firms. This is consistent with the notion that young firms are more focused on growth and investment and may have limited access to external financial resources. In contrast, mature and old firms tend to hold lower cash levels, possibly due to greater financial stability, increased creditworthiness, and a lower need to manage financial risks. Controlling for significant variables, we confirm our findings with the robustness tests. Taking care of the endogeneity issue, we still can confirm that firm age is negatively significant to the level and the marginal value of cash holdings.

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Corporate Cash Holdings and Exposure to Macroeconomic Conditions

Cited by 6 publications

References 45 publications

Do macroeconomic conditions affect corporate cash holdings and cash adjustment dynamics? Evidence from GCC countries

Do macroeconomic conditions affect corporate cash holdings and cash adjustment dynamics? Evidence from GCC countries

Impact of Macroeconomic Factors on Financial Liquidity of Companies: A Moderation Analysis

Cash Holdings and Marginal Value of Cash across Different Age Groups of U.S. Firms

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