What Drives the Liquidity of Industrial Firms?

Abstract

We investigate the cash management policy of Turkish industrial firms during the period 1998–2018. Our findings indicate the relative stability of cash holdings of industrial firms with a mean of 12.84 per cent of total assets, which is higher compared to other Turkish firms. Overall, cash flow, sales growth, leverage, net working capital and capital expenditures are the main drivers of cash holdings. We examine the effect of one of the indicators of asymmetric information—earnings quality score on the level of cash holdings. The results show that firms with high earnings quality score tend to hold a high level of cash due to operational use. Finally, we conclude that the drivers of cash holdings also differ in firms with high versus low earnings quality score.