Corporate cash holdings: Evidence from a different institutional setting

This paper investigates the determinants of Swiss non-financial firms’ cash holdings overthe 1995 to 2004 period. The median Swiss firm holds almost twice as much cash andcash equivalents as the median UK or US firm. Our results indicate that there is a negativerelationship between asset tangibility and cash holdings and a non-linear relationshipbetween leverage and cash holdings. Dividend payments are positively related to cash reserves.However, there is no robust impact of firm size on cash. We also cannot detect asignificantly positive relationship between growth opportunities (measured by the marketto-book ratio) and cash holdings, suggesting that the financing hierarchy theory is of littleimportance for the liquidity planning of Swiss firms. Dynamic panel estimation revealsthat Swiss firms adjust their cash holdings only slowly towards an endogenous target cashratio. Looking at a firm’s corporate governance structure, we reveal a non-linear relationshipbetween managerial ownership and cash holdings, indicating an incentive alignmenteffect and an opposing effect related to increasing risk aversion. Finally, our results indicatethat firms where the CEO at the same time serves as the COB hold significantlymore cash.