(DP 2013-11) Corporate Cash Holding in Asia

Charles Yuji Horioka, Akiko Terada-Hagiwara

Abstract


In this paper, we analyze the determinants of corporate saving in the form of changes in the stock of cash for 11 Asian economies using firm-level data from the Oriana Database for the 2002–2011 period. We find some evidence that cash flow has a positive impact on the change in the stock of cash, which suggests that Asian firms are borrowing constrained and that they save more when their cash flow increases so that they will be able to finance future investments. Moreover, we find in the developed economy sample that, as expected, cash flow has a positive impact on the change in the stock of cash only in the case of the smallest firms, which are more likely to be borrowing constrained, and find in the developing economy sample that, as expected, the positive impact of cash flow on the change in the stock of cash declines with firm size. In addition, we find that the cash flow sensitivity of cash declined after the global financial crisis. Finally, we find some evidence that Tobin’s q has a positive impact on the change in the stock of cash.

JEL Classification: D92, E21, E22, G11, O53


Keywords


corporate saving, corporate investment, borrowing constraints, liquidity constraints, cash flow, cash holdings, cash flow sensitivity of cash, Tobin’s q, firm size, productivity shocks, Asia, Oriana Database, financial sector development

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