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Corporate cash holdings: Evidence from Switzerland
Authors:Wolfgang Drobetz  Matthias C Grüninger
Institution:(1) Institute of Finance, University of Hamburg, Von-Melle-Park 5, 20146 Hamburg, Germany;(2) Department of Corporate Finance, University of Basel, Petersgraben 51, 4003 Basel, Switzerland
Abstract:This paper investigates the determinants of cash holdings for a comprehensive sample of Swiss non-financial firms between 1995 and 2004. The median Swiss firm holds almost twice as much cash and cash equivalents as the median US or UK firm. Our results indicate that asset tangibility and firm size are both negatively related to corporate cash holdings, and that there is a non-linear relationship between the leverage ratio and liquidity. Dividend payments and operating cash flows are positively related to cash reserves, but we cannot detect a significant relationship between growth opportunities and cash holdings. Most of these empirical findings, but not all of them, can be explained by the transaction costs motive and/or the precautionary motive. Analyzing the corporate governance structures of Swiss firms, we document a non-linear relationship between managerial ownership and cash holdings, indicating an incentive alignment effect and an opposing effect related to increasing risk aversion. Finally, our results suggest that firms in which the CEO simultaneously serves as the COB hold significantly more cash.
Contact Information Matthias C. GrüningerEmail:
Keywords:Cash holdings  Transaction costs motive  Precautionary motive  Corporate governance
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