University of Twente Student Theses
The determinants of cash holdings and its effect on the performance of European listed firms
Immelman, N.F. (2018) The determinants of cash holdings and its effect on the performance of European listed firms.
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| Abstract: | Using OLS, fixed effect and Fama-MacBeth regressions I examine the determinants of cash holdings for listed firms in Denmark, France, Germany, and the Netherlands and find support for the precautionary motive for cash. Firms build cash reserves to spend on R&D and hold more cash if they expect good growth opportunities. Furthermore, it is evident that firms follow the pecking-order theory and prefer to build cash internally from cash flow as opposed to issuing debt. Given the corporate governance and financial system differences between the selected European countries and the US and UK, I find that the firms follow a similar cash policy. After an estimated target cash level is obtained I find that deviating from this target is associated with lower future accounting and market performance. This implies that investors are unable to anticipate the lower future performance associated with deviating from an estimated target cash level. Statistical evidence of an implementable buy-and-hold investment strategy is not found. |
| Item Type: | Essay (Master) |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 83 economics |
| Programme: | Business Administration MSc (60644) |
| Link to this item: | https://purl.utwente.nl/essays/74893 |
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