Cash holdings, corporate performance and viability of Greek SMEs

Panagiotis E. Dimitropoulos · Konstantinos Koronios · Alkis Thrassou · Demetris Vrontis

81 citations0/0 files storedEuroMed Journal of Business

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Corporate Finance and Governance Banking stability, regulation, efficiency Working Capital and Financial Performance

Abstract

Purpose Several theories have been developed trying to explain the corporate decisions on cash holdings. Stakeholder theory is one of the arguments that urge firms with strong stakeholder relationships to hold more cash. The purpose of this paper is to shed further light on this issue by examining the impact of cash holdings on the financial performance and viability of Greek Small-Medium Enterprises before and after the Greek sovereign debt crisis. Design/methodology/approach The authors collected a large sample from Small-Medium-sized Enterprises (SMEs) and a comparable sample from large firms operating in Greece during the period 2003–2016. Panel regression analysis was performed before and after the Greek debt crisis. Findings Results indicated that cash holdings contribute positively to the profitability and viability of firms validating the precautionary theory of cash holdings in Greece. Before the crisis, SMEs and large firms both benefited significantly by cash holdings but after the crisis that positive impact of cash is more evident and significant for SMEs. Practical implications These findings corroborate the hypotheses that during a period of limited lending (and severe financial turmoil); cash holdings (and effective cash management) could be a vital tool for sustaining SMEs’ viability and financial performance. This study offers useful managerial implications and contributes to the ongoing debate about the impact of cash holdings on corporate performance. Originality/value This is the first study in the Greek business setting trying to examine the impact of cash holdings on financial performance within stakeholder-oriented firms during a period of financial turmoil.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate financing and investment decisions when firms have information that investors do not have 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1996Agency costs of free cash flow, corporate finance, and takeovers 1999The determinants and implications of corporate cash holdings 2004The Cash Flow Sensitivity of Cash 2010The real effects of financial constraints: Evidence from a financial crisis 1984The effect of capital structure on a firm's liquidation decision

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