The Determinants of Cash for Latin American Firms

We examine the levels and determinants of cash in Latin America. Latin American firms, as opposed to U.S. firms, did not hoard cash during the 1995-2006 period. However, we find remarkable similarities with respect to the determinants of cash between U.S. and Latin American firms. Net working capital, capital expenditures and net leverage all decrease the levels of Latin American firms' cash balances while growth opportunities increase them. Contrary to theoretical expectations, firm size and dividend payments seem to increase Latin American firms' need for cash whereas cash flow volatility does not seem to affect cash levels. We provide a possible explanation for these deviations by disaggregating results by countries and industries