University of Twente Student Theses


The determinants of cash holdings : evidence from German listed firms

Hilgen, MH. (2015) The determinants of cash holdings : evidence from German listed firms.

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Abstract:This thesis examines the firm specific determinants of cash holdings for a sample of 270 German listed firms over the period from 2005 to 2013. I test the predictions for the various firm-specific determinants, which are suggested by three theoretical models: the trade-off model, the pecking order theory and the free cash flow theory. I find that firm size, leverage, bank debt and liquid assets have significant negative influences on cash holdings. Moreover, the variable investment opportunity turns out to be positively related with cash holdings. Hence, it can be concluded that the trade-off model prevails in ex- plaining most of the variation in cash holdings among German listed firms. The pecking- order theory receives reasonable support as well, while there is only weak support for the free cash flow theory. Besides, I find that the overall effect of the firm-specific deter- minants, and particularly the effect of leverage, decline during the period after the global financial crisis (2009-2013). This may be attributed to the creditors’ increased prudence and the tightening of their credit policy, following the financial crisis.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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