Corporate life cycle and cash holding decisions: A South African study

Abstract

The resource-based view theory suggests that as firms’ resource bases differ along the corporate life cycle, even corporate policies such as cash holdings vary along the life cycle. This study seeks to understand the effect of firm’s life cycle on corporate cash holding behavior. Previous literature has sought to investigate the firm and institutional determinants of corporate cash holdings. Using the resource-based view theory, this study investigates whether corporate life cycle can be another determinant of corporate cash holdings. A panel data analysis of a sample of 112 Johannesburg Stock Exchange (JSE) listed firms from 2011 to 2018 is utilized to determine if firm’s life cycle does influence cash holding behavior. Dickinson’s cash flow analysis is used to proxy life cycle stages and control other known determinants of corporate cash holdings such as firm size, leverage, profitability, dividend payments, and growth opportunities. Contrary to other studies, this study finds no significant relationship between life cycle stages and corporate cash holdings, suggesting that corporate cash holdings for South African firms are driven by other factors other than life cycle resource allocations. However, it is found that prior year cash balances, firm size, and profitability have significant positive relationships with cash holdings. It is also found that liquid asset substitutes, leverage, and investment opportunities exert a significant and negative influence on corporate cash holdings.

The Moderator Effect of Institutional Ownership on the Relationship between Cash Holdings of Life-Cycle Stages: Evidence from Borsa Istanbul

“…Our results show significant differences from the literature. Chireka (2020) did not find any relationship between life cycle stages and cash holding behavior in South Africa. Contrary to our findings, Rehman et al (2021) claim that the lowest cash levels occur in the decline stage in the Chinese sample.…”

“…Thus, we expect that cash holdings are significantly linked to the life cycle stages. The literature on the effect of the life cycle on cash holdings is rare and presents mixed results for a very limited number of countries (Alzoubi, 2019;Chireka, 2020;Rehman et al, 2021). Therefore, in this study, we aim to fill this gap and test the effect of the life cycle on cash holding in Turkey, one of the most important emerging markets.…”

Pengaruh Size, Return On Asset dan Leverage Terhadap Islamic Social Reporting (Studi Empiris pada Bank Umum Syariah di Indonesia Tahun 2015-2019)

“…Perusahaan dengan ukuran besar memiliki akses lebih besar dan luas untuk mendapat sumber pendanaan dari luar, sehingga untuk memperoleh pinjaman akan menjadi lebih mudah karena dikatakan bahwa perusahaan dengan ukuran besar memiliki kesempatan lebih besar untuk memenangkan persaingan atau bertahan dalam industry (Chireka, 2020).…”

Managerial ability and corporate cash holdings adjustment speed in South African listed firms

“…In South Africa, corporates especially non-financial corporates (NCFs) are alleged to be on an investment strike, preferring to accumulate cash holdings rather than promoting real investment (Karwowski 2018). Accordingly, several studies have sought to understand the corporate cash holdings phenomenon in South Africa (Chireka 2020;Chireka & Fakoya 2017;Karwowski et al 2022;Machokoto, Chipeta & Ibeji 2021). These studies have largely focussed on firm-specific and institutional factors that determine the optimal corporate cash holdings levels.…”