IDEAS home Printed from https://ideas.repec.org/a/vrs/zirebs/v27y2024i1p79-95n1004.html
   My bibliography  Save this article

Corporate Internationalization and Uncertainty of Cash Holdings: Evidence from an Emerging Market

Author

Listed:
  • Mirza Hammad Hassan

    (Malik Firoz Khan Noon Business School, University of Sargodha, Sargodha, Pakistan.)

  • Hussain Haroon

    (Malik Firoz Khan Noon Business School, University of Sargodha, Sargodha, Pakistan.)

  • Sarwar Ghulam

    (Malik Firoz Khan Noon Business School, University of Sargodha, Sargodha, Pakistan.)

  • Habib Haroon

    (The Eminent Group Colleges, Sargodha, Pakistan.)

Abstract

Purpose – The purpose of this study is to investigate the empirical relationship between corporate internationalization and uncertainty of cash holding in non-financial listed companies of Pakistan. Secondly, the effect of cash flow, size of firm and capital expenditure on uncertainty of cash is also explored. Design/Methodology/Approach - A panel data of 100 companies over the period starting from 2011 to 2018 is collected from the published annual reports. Data is analyzed using pooled and panel OLS regression. For robustness of results dynamic GMM is used. Findings - The estimated results show a significant negative relationship between corporate internationalization and uncertainty of cash holdings. Moreover, large size firms tend to represents a relatively more stable cash balance as compared to small size firms. Practical Implications - The study concludes that firms engage in international operations are in better position to access external capital market and are able to stabilize their liquidity. Originality/Value – This study uses 3 years standard deviation of cash instead of conventionally used absolute change in cash balance to measure uncertainty of cash. This study is among the first studies to examine such sort of relationships in an emerging economy. Further, for robustness of results dynamic panel GMM is applied.

Suggested Citation

  • Mirza Hammad Hassan & Hussain Haroon & Sarwar Ghulam & Habib Haroon, 2024. "Corporate Internationalization and Uncertainty of Cash Holdings: Evidence from an Emerging Market," Zagreb International Review of Economics and Business, Sciendo, vol. 27(1), pages 79-95.
    • Handle: RePEc:vrs:zirebs:v:27:y:2024:i:1:p:79-95:n:1004
    DOI: 10.2478/zireb-2024-0004
    as

    Download full text from publisher

    File URL: https://doi.org/10.2478/zireb-2024-0004
    Download Restriction: no
    File URL: https://libkey.io/10.2478/zireb-2024-0004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Merton H. Miller & Daniel Orr, 1966. "A Model of the Demand for Money by Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(3), pages 413-435.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Ramírez, Andrés & Tadesse, Solomon, 2009. "Corporate cash holdings, uncertainty avoidance, and the multinationality of firms," International Business Review, Elsevier, vol. 18(4), pages 387-403, August.
    4. Dittmar, Amy & Mahrt-Smith, Jan & Servaes, Henri, 2003. "International Corporate Governance and Corporate Cash Holdings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 111-133, March.
    5. Thomas W. Bates & Kathleen M. Kahle & René M. Stulz, 2009. "Why Do U.S. Firms Hold So Much More Cash than They Used To?," Journal of Finance, American Finance Association, vol. 64(5), pages 1985-2021, October.
    6. Ozkan, Aydin & Ozkan, Neslihan, 2004. "Corporate cash holdings: An empirical investigation of UK companies," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2103-2134, September.
    7. Khurana, Inder K. & Martin, Xiumin & Pereira, Raynolde, 2006. "Financial Development and the Cash Flow Sensitivity of Cash," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(4), pages 787-808, December.
    8. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 66(4), pages 545-556.
    9. repec:bla:jfinan:v:59:y:2004:i:4:p:1777-1804 is not listed on IDEAS
    10. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities are Useful: A Comment on Kaplan and Zingales," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(2), pages 695-705.
    11. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    12. Chen, Huafeng (Jason) & Chen, Shaojun (Jenny), 2012. "Investment-cash flow sensitivity cannot be a good measure of financial constraints: Evidence from the time series," Journal of Financial Economics, Elsevier, vol. 103(2), pages 393-410.
    13. Acharya, Viral V. & Bharath, Sreedhar T. & Srinivasan, Anand, 2007. "Does industry-wide distress affect defaulted firms? Evidence from creditor recoveries," Journal of Financial Economics, Elsevier, vol. 85(3), pages 787-821, September.
    14. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    15. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    16. Ijaz Nabi, 1989. "Investment in Segmented Capital Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(3), pages 453-462.
    17. Doukas, John A. & Pantzalis, Christos, 2003. "Geographic diversification and agency costs of debt of multinational firms," Journal of Corporate Finance, Elsevier, vol. 9(1), pages 59-92, January.
    18. repec:bla:jfinan:v:43:y:1988:i:1:p:1-19 is not listed on IDEAS
    19. Lee Pinkowitz & Rohan Williamson, 2007. "What is the Market Value of a Dollar of Corporate Cash?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(3), pages 74-81, June.
    20. Khan, Ashfaque H & Hasan, Lubna, 1998. "Financial Liberalization, Savings, and Economic Development in Pakistan," Economic Development and Cultural Change, University of Chicago Press, vol. 46(3), pages 581-597, April.
    21. Gugler, Klaus & Yurtoglu, B. Burcin, 2003. "Corporate governance and dividend pay-out policy in Germany," European Economic Review, Elsevier, vol. 47(4), pages 731-758, August.
    22. Ali Uyar & Cemil Kuzey, 2014. "Determinants of corporate cash holdings: evidence from the emerging market of Turkey," Applied Economics, Taylor & Francis Journals, vol. 46(9), pages 1035-1048, March.
    23. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    24. Robert M Grant, 1987. "Multinationality and Performance among British Manufacturing Companies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 18(3), pages 79-89, September.
    25. Newton Arata & Hsia Hua Sheng & Mayra Ivanoff Lora, 2015. "Internationalization and Corporate Cash Holdings: Evidence from Brazil and Mexico," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 19(spe1), pages 1-19.
    26. Ascioglu, Asli & Hegde, Shantaram P. & McDermott, John B., 2008. "Information asymmetry and investment-cash flow sensitivity," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1036-1048, June.
    27. Francis, Bill & Hasan, Iftekhar & Song, Liang & Waisman, Maya, 2013. "Corporate governance and investment-cash flow sensitivity: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 15(C), pages 57-71.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abdul Rashid & Maryam Ashfaq, 2017. "Financial Constraints And Corporate Cash Holdings: An Empirical Analysis Using Firm Level Data," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 1-26, June.
    2. Cristina Martínez-Sola & Pedro J. García-Teruel & Pedro Martínez-Solano, 2018. "Cash holdings in SMEs: speed of adjustment, growth and financing," Small Business Economics, Springer, vol. 51(4), pages 823-842, December.
    3. Heitor Almeida & Murillo Campello & Igor Cunha & Michael S. Weisbach, 2014. "Corporate Liquidity Management: A Conceptual Framework and Survey," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 135-162, December.
    4. Alves, Paulo & Morais, Francisco, 2018. "Cash holdings are increasing and financial crisis strenghts it," MPRA Paper 83799, University Library of Munich, Germany.
    5. John R Graham & Mark T Leary, 2018. "The Evolution of Corporate Cash," The Review of Financial Studies, Society for Financial Studies, vol. 31(11), pages 4288-4344.
    6. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2013. "The Effects of Future Capital Investment and R&D Expenditures on Firms' Liquidity," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 459-474, August.
    7. Gao, Ning & Mohamed, Abdulkadir, 2018. "Cash-rich acquirers do not always make bad acquisitions: New evidence," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 243-264.
    8. Quoc Trung Tran, 2020. "Corporate cash holdings and financial crisis: new evidence from an emerging market," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(2), pages 271-285, June.
    9. Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
    10. Adão, Bernardino & Silva, André C., 2020. "The effect of firm cash holdings on monetary policy," European Economic Review, Elsevier, vol. 128(C).
    11. Inaba, Kei-Ichiro, 2021. "Corporate cash and governance: A global look into publicly-traded companies' aggregate cash ratios," International Review of Financial Analysis, Elsevier, vol. 78(C).
    12. Cui, Di & Ding, Mingfa & Han, Yikai & Suardi, Sandy, 2022. "Foreign shareholders, relative foreign policy uncertainty and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 84(C).
    13. John R. Graham & Mark T. Leary, 2017. "The Evolution of Corporate Cash," NBER Working Papers 23767, National Bureau of Economic Research, Inc.
    14. Paulo, Alves, 2018. "Abnormal retained earnings around the world," Journal of Multinational Financial Management, Elsevier, vol. 46(C), pages 63-74.
    15. Liu, Guangqiang & Zhang, Lingyun & Xie, Ziqin, 2022. "Environmental taxes and corporate cash holdings: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
    16. Tri Tri Nguyen & Manh Cuong Nguyen & Hung Quang Bui & Tuyet Nhung Vu, 2021. "The cash-holding link within the supply chain," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1309-1344, November.
    17. Ahrends, Meike & Drobetz, Wolfgang & Nomikos, Nikos K., 2018. "Corporate cash holdings in the shipping industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 112(C), pages 107-124.
    18. 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.
    19. Bigelli, Marco & Sánchez-Vidal, Javier, 2012. "Cash holdings in private firms," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 26-35.
    20. Constantine Barasa & George Achoki & Amos Njuguna, 2018. "Determinants of Corporate Cash Holding of Non-Financial Firms Listed on the Nairobi Securities Exchange," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(9), pages 222-222, August.

    More about this item

    Keywords

    Corporate internationalization; Uncertainty of cash; Panel data analysis; Dynamic panel GMM; R-Studio syntax;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vrs:zirebs:v:27:y:2024:i:1:p:79-95:n:1004. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.sciendo.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.