Determinants of Cash Holdings: A Study of Manufacturing Firms in India
Keywords:
Cash holdings, Determinants, Trade-off theory, Pecking order theory, Agency theoryAbstract
This article investigates the determinants of cash holdings of Indian manufacturing firms. We investigate firm specific determinants such as Firm Size, Growth Opportunities, Leverage, Cash Flow, Dividend, Net Working Capital, R&D Expenditure, Assets Tangibility, Profitability, Interest Expenses, Cash Conversion Cycle, Inverse of Altman’s Z score, Firm Age and Cash Flow Volatility using a sample of 500 manufacturing firms for a period from 2005-2017. The study finds that Growth Opportunities, Leverage, Cash Flow, Dividend, Net Working Capital, R&D Expenditure and Profitability positively affect cash holdings whereas Firm Size, Assets Tangibility and Interest Expenses negatively affect cash holdings. Further, Firm Size and Growth Opportunities support the trade-off theory. Cash Flow and Profitability support the pecking order theory. Moreover, Growth Opportunities support both trade-off theory and pecking order theory. However, Cash Conversion Cycle, Inverse of Altman’s Z score, Firm Age and Cash Flow Volatility have insignificant impact on cash holdings.
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