Why New Zealand Companies Hold Cash: An Empirical Analysis (eBook, PDF)

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Produktbeschreibung

Master's Thesis from the year 2004 in the subject Business economics - Operations Research, grade: 1.0 (A), UNITEC New Zealand (Business Administration), language: English, abstract: As Ross, Westerfield and Jordan (2000) report, at the end of 1997 a number of US companies piled up tremendous amounts of cash and marketable securities. At that time Ford held US $20.8 billion, GM US $14.5 billion, and Chrysler US $7.1 billion in liquid assets. This naturally raises the question for which reasons a firm would hold such large amounts of cash, and if there is an optimal amount of cash holdings. While this issue remained largely unexamined in the financial literature for years, recently, some researchers tried to explore the determinants of corporate cash holdings in the US (e.g. Opler, Pinkowitz, Stulz and Williamson, 1999) and in some European countries (e.g. Ferreira and Vilela, 2002). However, different reasons for holding cash might exist in countries with less developed economies. In this study, I examine the determinants of corporate cash holdings using a sample of companies listed at the New Zealand Stock Exchange in the 1980-2003 period. This work is guided by three theoretical models which are helpful in finding the determining factors of cash holdings. However, these models partially disagree about how certain firm characteristics affect liquid asset holdings. The trade-off model assumes that companies weight the marginal benefits and the marginal costs of holding cash to decide on their cash holdings. Thus, firms have a target cash level to which they continuously try to adjust. Benefits of holding cash are for example the reduction of transaction costs, and costs related to holding cash are mainly opportunity costs. The second model of corporate cash holdings is the financing hierarchy model. Ac-cording to this theory, firms want to avoid costs induced by asymmetric information and, therefore, use cash from retained earnings to finance investments before using debt or even equity.

Produktdetails

• Verlag: GRIN Verlag
• Erscheinungstermin: 13. April 2004
• Englisch
• ISBN-13: 9783638267298
• Artikelnr.: 37415254