What Determine the Corporate Cash Holdings? A Cross Country Analysis

The study seeks to investigate the firm specific and country specific factors affecting the corporate cash holdings of non-financial firms in Europe and Asia over the period 2010-2019. One step and two step system GMM panel estimators are applied in dynamic panel model for hypothesis testing. We show that firms in Asia Pacific region have slightly higher cash holdings as compared to firms in Europe. Specifically, we find that firm size, financial distress, investment and profitability influence the cash reserves positively in both regions. But increase in net working capital and shareholders’ right index notably decreases the cash holdings of firms in both regions. For other factors, the study found the mixed evidence about the relationship with cash holdings. Overall, the results are inconclusive across the different specification of firms, and the magnitude of coefficient varies. Thus findings provide extensive knowledge to the scholars and practitioners. Previous studies mostly used static model but this study used dynamic panel model. This study is among the first that focused on factors affecting the cash holding of firms in Asia Pacific and Europe region; thus providing extensive knowledge to the scholars and practitioners