Market share and cash policy

This study analyses the impact of market share on corporate cash policy in a static as well as a dynamic framework. Using a panel data set of large firms in 14 European countries, we show that firms with high market share tend to have lower cash holdings. This relationship between market share and cash policy is most apparent when predation risk, measured using either the similarity of a firm’s technology with its industry counterparts or market concentration, is high. Since the precautionary motive can be expected to be more relevant in a competitive environment, due to higher predatory risk, our results strongly attribute to the understanding of the relevance of the precautionary motive in a firm’s cash policy.status: publishe