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Cash holdings in private firms

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  • Bigelli, Marco
  • Sánchez-Vidal, Javier

Abstract

Evidence from a wide sample of Italian private firms shows that cash holdings are significantly related with smaller size, higher risk and lower effective tax rates, therefore supporting predictions from the trade-off model. More cash is also held by firms with longer cash conversion cycles and lower financing deficits, as predicted by the financing hierarchy theory. Reported evidence also shows that dividend payments are associated with more cash holdings, and both bank debt and net working capital represent good cash-substitutes. When controlling for macroeconomic and industry factors, some variables lose their significance, but the general findings are confirmed. Finally, cash-rich companies are found to be more profitable, to pay more dividends and to invest more in a medium-term future horizon.

Suggested Citation

  • Bigelli, Marco & Sánchez-Vidal, Javier, 2012. "Cash holdings in private firms," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 26-35.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:1:p:26-35
    DOI: 10.1016/j.jbankfin.2011.06.004
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    More about this item

    Keywords

    Cash holdings; Cash determinants; Private firms; Trade-off model; Pecking order theory;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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