Analysis of determinants of corporate cash holding of listed manufacturing companies on the Macedonian stock exchange

Abstract

In this study, we identify the determinants of cash holding in Macedonian manufacturing companies. The analysis was conducted using accounting data from publicly available financial statements of the sample of Macedonian industrial companies for the 2005 to 2019 period. The research was conducted through the prism of the postulates of the three main theories in corporate finance, i.e., the trade-off theory, pecking order theory, and the free cash flow theory. To that end, we applied a panel regression analysis, while from the obtained results we assess which theoretical model best explains the cash management in Macedonian companies. We found that the cash to total assets ratio averaged 3.1%. The cash holding decreases with the decrease of the net working capital, financial leverage, cash flow variability, and cash conversion cycle. Cash holding increases with the increase of the company size, cash flow, debt maturity, and capital investments. We concluded that most of the results are in line with the pecking order theory, which indicates that Macedonian companies do not have predefined cash balances, and the cash holdings are a buffer between retained earnings and investments. The level of cash holding is not planned and is not optimized, but is determined during the work processes and depends on other business decisions.