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Institut für Financial Management

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Browsing Institut für Financial Management by Person "Duran-Rickenberg, Duygu"

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    Corporate cash holdings – new empirical evidence in the context of uncertainty, monetary policy, technology intensity and credit ratings
    (2024) Duran-Rickenberg, Duygu; Hachmeister, Dirk
    In search of understanding the drivers behind corporate cash holdings, plenty of research has been conducted around the determinants of cash holdings leading to somewhat differing, non-exclusive explanations of holding cash. Our thesis focuses on two facts, namely the significant increase of corporate cash holdings and the close relatedness of cash hoardings to a firm’s financing choices. Both facts contributed to the impressive increase in academic attention towards U.S. corporate cash holdings in the last decade, especially after the financial crisis. Despite several approaches to explain the puzzle around elevated cash holdings, the literature is still unable to explain the increase in cash holdings completely. Therefore, in three empirical papers we closely investigate into the determinants of cash holdings and its closely related measure of refinancing risk, proxied as debt maturity, in the context of macroeconomics in search of further determining factors to find additional puzzle pieces that explain cash holdings to a fuller extent. In chapter 1 we give a short introduction and problem statement around these puzzling high levels of cash holdings at non-financial U.S. corporates with a guidance through the empirical analyses done in chapters 2 to 4. In chapter 2 we receive further insights into the puzzling increase of cash holdings over the last decades employing U.S. data for non-financial firms for the period 1980 to 2019 and post financial crisis 2009 to 2019 and using a simultaneous equation model of cash, keeping debt maturity as proxy for refinancing risk endogenous, and incorporating monetary supply and economic policy uncertainty into the model. We find that refinancing risk, and economic policy uncertainty impact cash holdings positively in the full sample, whereas an increase in money supply has a negative effect on cash holdings. The refinancing risk effect on cash holdings becomes more pronounced post financial period and our data imply that monetary supply after the financial crisis has an overarching effect over uncertainty, rendering the impact of uncertainty insignificant. In chapter 3, using an updated OECD technology taxonomy proposal based on ISIC Rev. 4 for the period 1980 to 2019 and post financial crisis 2009 to 2019 for U.S. non-financial firms, we cluster our firm data into high, medium-high, medium, medium-low and low technology. By including technology dummies into the simultaneous equation model of cash, keeping debt maturity as proxy for refinancing risk endogenous, we receive further insights into the recent drivers of high cash levels in the U.S. We find that high tech firms drive cash holdings dramatically and that they come with higher refinancing risk. Due to a shift in our data towards higher technology over the years this effect of high tech becomes more prominent. Post financial crisis, being a high tech firm has an even more pronounced effect on cash holdings. We find that higher tech firms operate in a different way than lower tech firms with regards to their capital structure choices. Compared to lower tech, higher tech firms have less total debt and tend to have short-term debt if they hold debt at all. In chapter 4, using U.S. data for non-financial firms as well as S&P long-term issuer rating data for the period 1985 to 2016, we receive further insights into the determinants of cash holdings by including rating grade or availability of it into our cash model. We use a simultaneous equation model of cash, keeping debt maturity as proxy for refinancing risk endogenous, and incorporating monetary supply and economic policy uncertainty into the model. We find that rated and unrated firms differ in firm characteristics. Rated firms tend to be older, larger, more profitable, have more leverage ratio and debt that matures in more than five years. The differences in firm characteristics between rated and unrated firms in turn affect the magnitude and significance of cash determinants. Additionally, we find that higher tech firms are underrepresented among rated firms and if they do have a rating, they belong to the investment grade group. We conclude that unrated, higher technology firms are the major drivers of high cash holdings, although we find that having a credit rating increases firm cash holdings ceteris paribus. In chapter 5 we conclude by summarizing our findings and contributions to research.