Abstract

Comments welcome. This paper investigates the determinants and consequences of the corporate cash holdings. We use firm-level data of 4,515 firms in Canada, France, Germany, Great-Britain and the USA over the period 1989-2002. We show that financial factors, as well as institutional factors, influence the corporate cash holdings determinants. Moreover, implementing a dynamic panel data estimation, we find empirical support for the hypothesis of implicit cash targets. The second key point of the paper is to investigate the consequences of “excessive ” cash holdings. To do so, we implement a bivariate probit model to take into account the fact that cash balances levels and the future performance of these firms are probably jointly determined. We conclude that excessive cash holdings lead to poor firm performances.

Citations