An Empirical Investigation Of The Determinants Of Cash Holdings By Public Firms In Pakistan,India And Bangladesh

Cash holding is amongst the most strategic decisions in financial management of an organization.Corporate cash holdings always involve a trade-off between benefits and costs.Empirical evidence suggests that there are several financial determinants of corporate cash holding.The pecking order theory,trade off theory and the Jensen’s cash flow theory suggest different relationships with cash holdings for different financial determinants.This paper conducts an analysis by choosing leverage,liquidity and profitability.Although some literature is available on the topic a comparison for South Asian markets seems to be missing.The research focuses to examine the relationships and their significance in the South Asian firms and compare it with firms in the US.The empirical findings are not found to be dissimilar from previous literature.The results of the analysis show that leverage is negatively effecting cash holding for Bangladesh,Pakistan and India.Profitability has a positive relationship for Pakistan,Bangladesh and India.Liquidity has negative impact in all three countries’ data sets.In the case of United States the research found results similar to our south Asian sample except profitability had a negative sign in Model 1 and 2.Factors that determine corporate cash holdings are found to be similar for developing and developed countries.The findings of our cross country analysis show that leverage,liquidity and profitability are important determinants of cash holdings in South Asian countries.It indicates that managers must consider these factors while making corporate cash holding policy.Further research is recommended to find some optimal cash holding level based on these factors.