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When does cash matter? Evidence for private firms

Author

Listed:
  • Paul Ehling

    (BI Norwegian business school)

  • David Haushalter

    (Sheal college of business)

Abstract

Using a database of more than 180,000 private companies from 2000 to 2009, we find that the benefits of holding more cash vary substantially with a firm’s size and the conditions it faces. Cash holdings matter most for small firms: when there are negative shocks to industry or macroeconomic conditions, a small firm’s cash holdings are positively associated with changes in its sales and assets. Cash is less important for other conditions. Differences in the benefits of cash holdings between large and small firms are traced to a firm’s ability – and willingness – to increase leverage when there is a cash shortfall.

Suggested Citation

  • Paul Ehling & David Haushalter, 2014. "When does cash matter? Evidence for private firms," Working Papers 1412, Banco de España.
    • Handle: RePEc:bde:wpaper:1412
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/14/Fich/dt1412e.pdf
    File Function: First version, June 2014
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    References listed on IDEAS

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    Cited by:

    1. Marcelo Ortiz, 2020. "Financial disclosure environment and the cash policy of private firms," Economics Working Papers 1692, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Maurizio Rocca & Raffaele Staglianò & Tiziana Rocca & Alfio Cariola & Ekaterina Skatova, 2019. "Cash holdings and SME performance in Europe: the role of firm-specific and macroeconomic moderators," Small Business Economics, Springer, vol. 53(4), pages 1051-1078, December.
    3. Marcelo Ortiz, 2020. "Financial Disclosure Environment and the Cash Policy of Private Firms," Working Papers 1148, Barcelona School of Economics.

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    More about this item

    Keywords

    cash holdings; benefits of cash holdings; private companies;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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