Corporate cash holdings,uncertainty avoidance,and the multinationality of firms |
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| Authors: | Andrés Ramírez Solomon Tadesse |
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| Institution: | 1. School of Management, Zhejiang University, Hangzhou, China;2. Department of Marketing, University of TX at Arlington, USA;1. Istanbul Medeniyet University, Ünalan Mah. Ünalan Sok., D-100 Karayolu Yanyol, 34700, Üsküdar, ?stanbul, Turkey;2. Istanbul Technical University (ITU), Macka 34367, Istanbul, Turkey;1. Smith School of Business, Queen''s University, Goodes Hall, K7L 3N6 Kingston, Ontario, Canada;2. Smith School of Business, Queen''s University, Kingston, Ontario, Canada;1. University of International Business and Economics, China;2. Beijing Foreign Studies University, China;3. Cardiff University, UK;4. Faculty of Business and Economics, University of Hong Kong, Hong Kong |
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| Abstract: | We examine the relationship between uncertainty avoidance, multinationality and firm cash holdings. We develop several hypotheses from corporate finance and multinational firm theory, positing that cultural factors as well firm multinationality influence corporate cash holdings. In particular, firms in countries with high uncertainty avoidance hold more cash as a way to hedge against undesired states of nature. At the same time, firm multinationality moderates the effects culture has on the firm's holdings of liquid assets. Based on a large panel of firms in fifty countries, we present evidence consistent with these hypotheses. Firms in countries with high levels of uncertainty avoidance tend to hold more cash. Against commonly held views in cash management, the degree of multinationality of the firm is positively correlated with holdings of cash. At the same time, the effect of national culture on firm's cash holdings is lower for multinationals. These results are economically significant. |
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