Factors influencing liquidity position of Indian manufacturing companies

Abstract

<jats:sec><jats:title content-type="abstract-subheading">Purpose</jats:title><jats:p>The purpose of this paper is to investigate the increasing demand for corporate liquidity and examines the various factors influencing the cash position of firms in India. The financial policy to hold cash gained impetus after the financial crisis when the companies faced a severe cash crunch. However, the firms operating in emerging nations have an imperfect market mechanism with stringent regulatory norms. Thus, this paper attempts to examine the determinants of corporate cash holdings in an emerging country like India.</jats:p></jats:sec><jats:sec><jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title><jats:p>The paper focuses on the impact of various factors (leverage, firm size, profitability, growth along with other variables), on the cash structure of all the manufacturing companies listed on the Bombay stock exchange. The study employs panel data methodologies over a sample of 323 firms over a period of eight years from 2010 to 2017.</jats:p></jats:sec><jats:sec><jats:title content-type="abstract-subheading">Findings</jats:title><jats:p>Significant estimators affecting cash holdings of a firm are the size of a firm, debt levels, tangibility, sales growth and research and development expense. Overall, the study finds evidence on the existence of Pecking Order theory in explaining the determinants of cash holdings in the Indian market.</jats:p></jats:sec><jats:sec><jats:title content-type="abstract-subheading">Research limitations/implications</jats:title><jats:p>The study attempts to explore the critical determinants of cash in the Indian context which can be useful for managers and academicians to understand how the key theories of cash holdings operate in an emerging economy like India.</jats:p></jats:sec><jats:sec><jats:title content-type="abstract-subheading">Originality/value</jats:title><jats:p>India is an emerging economy and has recently gained global attention and has become a hotspot for foreign investments. Thus, this paper explores pieces of evidence on the critical factors affecting cash holdings in India. The study would provide an understanding of the existing cash policy in the Indian context and attempts to find the changes in the financing structure adopted by the manufacturing industry in the given period.</jats:p></jats:sec>

Does debt heterogeneity impact firm value? Evidence from an emerging context

“…Liquidity is found to be highly significant and has a positive impact on firm value with coefficients 0.28, 0.33 and 0.23, respectively. The positive findings of liquidity and firm value are also suggested in studies by Rani et al (2019) and Tripathy and Uzma (2020).…”

“…Thus higher liquidity ratio indicates that firms can manager a higher percentage of the current liabilities through current assets. Liquidity is a measure of the ability of a firm to meet its obligations and has a positive linkage with firm value (Rani et al , 2019; Tripathy and Uzma, 2020).…”

Establishing the antecedents of accountant’s job satisfaction in an emerging market

“…India saw its financial accounting standards for the domestic companies converge with International Financial Reporting Standards through Ind AS (Indian Accounting Standards applicable from FY 2016–2017) and the implementation of the goods and services tax from 2017. As per Tripathy and Uzma (2020), India was seen as an attractive destination for foreign investments amongst emerging markets because of its resilience and potential to tide the Asian financial crisis through rapid development, as well as its manufacturing focus. Therefore, India was chosen as the setting for this study and the individual accountant was the unit of analysis.…”

“…Therefore, India was chosen as the setting for this study and the individual accountant was the unit of analysis. Furthermore, Tripathy and Uzma (2020) also observed that the behaviour of Indian manufacturing firms (which would employ accountants) was different from their international peers in many operational areas such as cash holding, which suggests that the findings of the studies undertaken in developed economies may or may not be relevant for emerging markets.…”

Impact of Debt vs Equity Financing on the Indian Economy 2018-2023

“…Hence, the people who purchase those shares are mentioned as shareholders of that company; with respect to this situation, those shareholders have partial ownership of that company and receive an ownership interest in that company. A company can meet its liquidity requirements by borrowing funds from the business; in other words, the liquidity needs of a business are met with equity financing (Tripathy and Uzma, (2020)).…”