Why do French firms hold cash?

International audienceThis paper investigates the determinants of the cash holdings of French firms over the period 1998- 2002, using the trade-off theory and the pecking order theory. We show that French firms increase their cash level when their activities are risky and the levels of their cash flow are high, and reduce it when they are highly leveraged. Growth companies hold higher cash levels than mature companies. For growth companies, there is a negative relation between cash and the following firm's characteristics: size, level of liquid assets and short-term debt. The cash level of mature companies increases with their size, their investment level, and the payout to their shareholders in the form of dividends or stock repurchases, and decreases with their trade credit and their expenses on research and development. Further results indicate that the firm's market value as measured by Tobin's Q increases with its cash level. This positive relation is stronger for growth companies than for mature companies