Corporate cash holdings: An increasingly important issue in corporate finance?

Recent studies show that cash holdings cannot be considered a mere byproduct of corporate financial decision making but is an integral part of the explicit or implicit risk management policies of firms. This paper first gives an overview of the corporate finance literature from the past few decades leading up to this latter insight. Secondly, this study provides novel empirical evidence on the motives and the determinants shaping corporate cash policy in large European listed and unlisted firms. The results show that the precautionary motive seems to outweigh the transaction cost, agency and predation risk motives of cash holdings. Finally, comparisons are drawn between our results and those based on US data. Interestingly, the differences between listed and unlisted firms appear less important than differences between US and European firms.status: publishe