How optimal cash changed by the global financial crisis? A multi-country analysis

Hasan Tekin

19 citations0/0 files storedEconomics and Business Letters

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

Abstract

This article investigates the impact of the global financial crisis 2007-2009 (GFC) as well as financial constraints and governance on optimal cash decisions. Using 14,885 sample firms from eleven countries, empirical results show that constrained firms have a faster cash adjustment than unconstrained firms as confirmed by precautionary motive. Contrary to agency motive, firms in weak-governed countries have a slower cash adjustment than those in well-governed countries before the GFC. However, this picture changes after the GFC. Specifically, they increase their cash adjustments, whereas those in well-governed countries decrease their cash adjustments as supported by agency motive. Overall, optimal cash policy differs following the GFC across financial constraints and governance.

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References

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2020Market differences and adjustment speed of debt, equity, and debt maturity 2021Is leverage a substitute or outcome for governance? Evidence from financial crises 2020Agency Theory: A Review in Finance 2021Cash Management, Governance, and the Global Financial Crisis: Evidence From Developing Asia

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