Corporate Cash Holdings:Evidence from Switzerland

This paper investigates the determinants of a broad sample of Swiss non-financial firms’cash holdings between 1995 and 2004. The median Swiss firm holds almost twice asmuch cash and cash equivalents as the median U.S. or U.K. firm. Our results indicate thatasset tangibility and firm size are both negatively related to cash holdings and that there isa non-linear relationship between the leverage ratio and liquidity holdings. Dividendpayments and operating cash flows are positively related to cash reserves, but we cannotdetect a significant relationship between growth opportunities and cash holdings. Most ofthese findings, but not all of them, can be explained by the transactions and/or the precautionarymotive. Dynamic panel estimation indicates that Swiss firms adjust their liquidityholdings only slowly towards an endogenous target cash ratio. Looking at the firms’corporate governance structures, we document a non-linear relationship betweenmanagerial ownership and cash holdings, indicating an incentive alignment effect and anopposing effect related to increasing risk aversion. Finally, our results suggest that firmsin which the CEO simultaneously serves as the COB hold significantly more cash.