Why do multinational firms hold so much cash? Further evidence on the precautionary motive

Efeito da estrutura do conselho de administração na retenção de caixa das companhias abertas

“…According to Keynes (1936), the reasons for precaution, transaction and speculation explain the need for companies to hold cash. The precautionary point is associated with the uncertain future and, therefore, can alleviate the possible lack of recourse (Keynes, 1936;Davydova & Sokolov, 2014;Al-Najjar & Clark, 2017;Zheng, 2019); the purpose of the transaction is to pay for the company's routine operations (Keynes, 1936;Bates, Kahle & Stulz, 2009;Al-Najjar & Clark, 2017) and speculation can ensure new investments and opportunities for value creation (Keynes, 1936;Al-Najjar & Clark, 2017). Foley et al (2007) claim that multinational companies hold cash because they keep overseas earnings in cash form with the aim of not paying taxes.…”

“…According to the authors, this increase is encouraged by several factors, such as investment opportunities, the volatility of cash flows, market competition and credit risk. Managers may hold cash for different reasons, such as to mitigate deficits in future cash flows (Bates, Kahle & Stulz, 2009), finance the company's growth and profitable investment opportunities (Faulkender & Wang, 2006;Denis & Sibilkov, 2009;Bates, Chang & Chi, 2018), invest in R&D (Brown& Petersen, 2011) and for the company to survive economic crises (Phan et al , 2019;Zheng, 2019).…”

“…The decision about spending or holding cash in the company can be explained for several reasons such as corporate governance (Dittmar, Mahrt-Smith & Servaes, 2003;Harford, Mansi & Maxwell, 2008;Al-Najjar & Clark, 2017), discretion (Jensen, 1986;Ferreira & Vilela, 2004), tax incentives (Foley, Hartzell, Titman & Twite, 2007), precaution, transaction and speculation (Keynes, 1936;Bates, Kahle & Stulz, 2009;Davydova & Sokolov, 2014) and political uncertainty (Phan, Nguyen, Nguyen & Hegde, 2019;Zheng, 2019). Additionally, Denis and Sibilkov (2009) report that this decision may result from potential or actual agency problems.…”

The impact of corporate environmental responsibility on corporate cash holdings: evidence from the most polluting listed companies in China

“…Pinkowitz et al (2012) find that the firms that become multinationals after 1998 have high cash holdings when they become multinationals, which suggests that the type of firms that are or become multinational firms have unique attributes that make cash holdings particularly valuable for them. Zheng (2019) provides evidence that the precautionary motive plays a key role in explaining the secular upward trend in cash holdings of multinational firms. Phan et al (2019) find that corporate cash holdings are positively associated with policy uncertainty, especially for companies dependent on government spending, which proves the precautionary motive for cash holdings.…”

“…The literature has spawned numerous hypotheses about the determinants of cash holdings, including the transaction motive (Baumol, 1952; Meltzer, 1963; Miller and Orr, 1966), the precautionary motive (Opler et al , 1999; Han and Qiu, 2007; Bates et al ., 2009; Harford et al , 2014; Zheng, 2019; Phan et al , 2019) and the agency cost motive (Jensen, 1986; Dittmar et al , 2003; Kalcheva and Lins, 2007; Nikolov and Whited, 2014; Kuan et al , 2012; Gao et al , 2013).…”