Impact of Company-Specific Determinants on Corporate Cash Holdings: Evidence from South-East European Countries

Abstract

This paper investigates the impact of intercompany determinants on corporate cash holdings in South East Europe. We researched a large sample of companies listed on the stock exchanges. We found that SEE companies’ cash holdings on average is 6.94% of the total assets, which is lower than in developed countries. Intercompany determinants have a significant impact on the company’s cash holdings. Our results suggest that cash holdings are positively affected by the size of the firms, cash flow, cash flow uncertainty, debt maturity, and growth opportunities. Cash holdings are negatively affected by the net working capital, financial leverage, and capital expenditures. SEE companies operate in underdeveloped financial markets with limited access to finances, and their cash holding decisions are mostly determined by the transaction motive. Our findings indicate that companies in SEE do not pursue a cash optimization policy. They largely follow the pecking order pattern and the cash holding of the firm is mostly determined by means of the relationship between the capital investments and internally generated funds.