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This study explores the relationship between banking uncertainty and firms' financial investments. Using data from Vietnam during 2007–2022, we find that firms tend to hold more financial investments, particularly short-term items, amid higher banking uncertainty. We conduct various sensitivity tests to demonstrate the robustness of this finding, particularly addressing endogeneity concerns with instrumental variables. Regarding the underlying mechanisms, our finding could be explained by both precautionary and profit-seeking incentives in motivating firms to invest in financial assets during uncertain times. Further analysis reveals that the uncertainty effect is weaker for firms with bank-firm relationships and firms listed on the Ho Chi Minh Stock Exchange (HOSE) compared to the Hanoi Stock Exchange (HNX). Our research also highlights that uncertainty impacts corporate financialisation more strongly during macroeconomic shocks caused by the financial crisis and the COVID-19 pandemic. Finally, we reveal that holding more financial assets is positively related to firm value, but this benefit diminishes during times of heightened banking uncertainty. [ABSTRACT FROM AUTHOR]

Cash management is critical for firm value as both cash surpluses and deficits can diminish value. Consequently, firms aim to maintain optimal cash levels by adjusting their actual cash ratios towards target ratios. Various factors influence cash holdings and the speed of these adjustments. This study examined the impact of the COVID-19 pandemic, which had heightened the precautionary motive for firms to hold cash. The analysis used observations from 159 firms from 2008 to 2022, applying Generalized Least Squares (GLS) regression and the system Generalized Method of Moments (system-GMM) while controlling for industry and year effects. The results indicated that during the COVID-19 period, firms' cash holdings ratios became increased than doubled and the speed of cash ratio adjustment increased by nearly 40% compared to previous years. These findings are consistent with the predictions of pecking order and trade-off theories, extending the existing literature by highlighting the pandemic's role in intensifying firms' financial pressures. The results suggested that the increased cash adjustment speed represented a strategic response to avoid the financial consequences of the COVID-19 crisis.Keywords: Precautionary Motive, Speed of Adjustment, COVID-19, Trade-off Theory, Cash Holding.JEL classification codes: G31, G32 IntroductionCash management is a critical aspect of firm liquidity and performance. The precautionary motive is considered the primary driver for holding cash as it becomes more important when firms face greater cash flow uncertainty or limited access to external financing during crises (Opler et al., 1999; Almeida et al., 2004). Global crises, such as the COVID-19 pandemic, can lead to heightened financing constraints for firms (Zubair et al., 2020). Based on pecking order theory, firms are expected to increase their cash holdings to preserve investment opportunities during such periods of crisis. Additionally, the trade-off theory suggests that the uncertainty induced by global crises may increase adjustment costs, leading to slower cash holdings adjustments. However, the benefits of moving more quickly towards target cash levels could potentially outweigh the higher adjustment costs, resulting in faster cash holdings adjustments (Melgarejo & Stephen, 2023). To investigate the impact of the COVID-19 pandemic on corporate cash holdings and their adjustment dynamics in Iran, this study examined the following hypotheses:H1: Compared to other years, firms held higher cash balances during the COVID-19 pandemic.H2: Compared to other years, the speed of cash holdings adjustments was higher during the COVID-19 pandemic. Materials & MethodsThis study utilized data from 159 firms (2,226 firm-years) in Iran for the period of 2008-2022. The data were primarily collected from the Rahvard Nowin database and any missing information was supplemented using reports published on the Codal website. For the analysis, the study period was divided into two sub-periods: the pre-COVID-19 period (2008-2018, 1,749 firm-years) and the COVID-19 pandemic period (2019-2021, 477 firm-years). The COVID-19 pandemic was considered to have started in the winter of 2018, affecting the financial reporting of that year, and continued through the end of 2021. To test the research hypotheses, the study employed a two-pronged approach. First, the static models were estimated using the Generalized Least Squares (GLS) estimator to examine the first hypothesis regarding the impact of COVID-19 on firms' cash holdings levels. Second, the dynamic models were estimated using the Blundell and Bond’s (1998) system Generalized Method of Moments (system-GMM) estimator to measure the speed of cash holdings adjustments and test the second hypothesis. To address potential statistical issues, the standard errors of the coefficients in the static models were corrected using cluster-robust standard errors at the firm level. For the dynamic models, the standard errors were corrected using Windmeijer’s approach (2005). Additionally, the study conducted robustness tests by considering the years 2020-2021 (318 firm-years) as the COVID-19 pandemic period and employing the two-stage approach suggested by Orlova and Rao (2018). These additional analyses aimed to ensure the reliability and consistency of the main findings. The data analysis was performed using Stata software and tabular data presentations. FindingsThe empirical analysis yielded several key findings. First, the positive and statistically significant coefficient of the COVID-19 dummy variable in the static models indicated that, after controlling for the determinants of cash holdings, as well as year and industry fixed effects, firms held a higher ratio of cash to non-cash assets (4.52-percentage point) during the COVID-19 pandemic period compared to the pre-pandemic years. This supported the first hypothesis that firms increased their cash holdings during the COVID-19 crisis. The dynamic model results provided further insights. Prior to the COVID-19 outbreak, the estimated speed of cash holdings adjustment was around 50%, suggesting that firms removed half of the deviation from their target cash ratio over a 12-month period. However, during the COVID-19 pandemic, the speed of adjustment increased to approximately 68.5%, implying that firms removed half of the deviation from their target cash ratio in about 7 months. These findings suggested that the speed of cash holdings adjustments increased by around 40% during the COVID-19 period compared to the pre-pandemic years and this was in line with the second research hypothesis. Overall, the results demonstrated that firms in Iran increased their cash holdings and exhibited faster cash holdings adjustments in response to the heightened uncertainty and financing constraints imposed by the COVID-19 crisis. These findings are consistent with the predictions of the pecking order and trade-off theories, highlighting the importance of precautionary cash management during periods of global economic turmoil. Discussion & Conclusion:The existing literature on the determinants and adjustment dynamics of corporate cash holdings has expanded considerably in recent years. Among the various motivations for holding cash, the precautionary motive has emerged as a key focus of scholarly attention. Theoretical frameworks, such as the trade-off theory, have been instrumental in explaining firms' cash management behaviors. Prior studies have investigated the impacts of firm-level, industry-level, and macroeconomic factors on cash holdings and their adjustment speeds. More recently, researchers have examined the effects of global systemic shocks, such as the COVID-19 pandemic, on corporate cash policies. However, evidence from the context of firms listed on the Tehran Stock Exchange (TSE) has been lacking. The current research helped to fill this gap by investigating the impacts of the COVID-19 crisis on the cash holdings and adjustment speeds of Iranian firms. The findings indicated that during the pandemic period, firms' cash-to-non-cash asset ratios increased by 4.52-percentage points compared to the pre-pandemic years. Moreover, the speed of cash holdings adjustments accelerated by around 40% during the COVID-19 crisis, with firms removing half of the deviation from their target cash ratios in about 7 months compared to 12 months in the pre-pandemic period. These results are consistent with the precautionary motive for holding cash and align with the predictions of the pecking order and trade-off theories. The observed increases in cash holdings and adjustment speeds suggested that Iranian firms adopted more aggressive cash management strategies to navigate the heightened uncertainty and financing constraints imposed by the COVID-19 pandemic. The findings of this study contribute to the growing body of literature on corporate cash policies in the context of global systemic shocks. The insights generated may also have practical implications for financial managers in developing economies, highlighting the importance of dynamic and proactive cash management practices during periods of economic turmoil.

The paper presents a model to study reverse auctions for conservation contracts. A buyer elicits bids from multiple rent seeking and risk averse farmers. Conservation activities have ex post cost risk such that farmers only learn the true value of conservation contracts after the auction. The paper derives the optimal bidding function and shows that farmers have conflicting incentives when facing multiple sources of risk. Specifically, we show that farmers exhibit a form of precautionary bidding, that is, they increase their bids in response to an increase in valuation risk. We propose an approach to take the model to the data and recover structural risk parameters. The suitability of the approach to real‐world data is demonstrated through a Monte Carlo experiment. [ABSTRACT FROM AUTHOR]

This study investigates the effect of geopolitical risk (GPR) on cash holdings of Korean firms. Korea's export orientation, relationship with North Korea, and weak corporate governance together form the basis for studying the relationship between GPR and Korean firms' cash holdings. Using samples of non-financial firms from 2001 to 2021, I find the GPR positively affects corporate cash holdings. This effect is more pronounced in firms with financial constraints, listed in the KOSDAQ (smaller and less regulated) market, and during cold market periods. My finding withstands various robustness tests including fixed effects, an instrument-variable analysis, and alternative measures of GPR. Overall, this study adds to the existing literature on corporate cash holdings by confirming that firms increase cash holdings with a precautionary motive to create a buffer against GPR-generated uncertainty. [ABSTRACT FROM AUTHOR]

This article investigates the impact of bank competition on the holdings of sovereign bonds. Using bank-level data from Vietnam for 2007-2021, I design various proxies to indicate bank competition and apply the system generalised method of moments (GMM) to conduct main regressions. I find that banks are more likely to hold domestic treasury securities in response to greater market competition. I add strength to my analysis by conducting subsample checks to allow for potential structural breaks due to the financial and COVID-19 pandemic crises. In addition, I find that sovereign debt holdings are less prominent when banks are more inclined to search for higher income during periods of intense competition. Meanwhile, the risk profile of the financial institution does not modify the potency of the market competition-bond holding association. These results suggest that banks would retain more sovereign debt under competitive pressure for strategic rather than precautionary motives. [ABSTRACT FROM AUTHOR]

Purpose. Over the past century, the stock market has become an ideal investment option for investors by pooling the needs of people with similar financial aspirations. This study explores the various variables of investment objectives and decision-making that motivate stock market participants based on the inherent motivations of Nepalese investors. This study examined individual investors’ reasons for investing regarding investment horizons, information and analysis, gender, age, academic qualifications, and stock market experience. Design/methodology/approach. This study includes administering a structured, closed-ended questionnaire to 405 investors in the stock market. This study uses an exploratory and causal-comparative approach to identify three primary investment motives: transactional, precautionary, and speculative. Findings. The regression analysis revealed that only speculative and transactional motives significantly impact stock market investment decisions (p < 0.05), emphasizing the unique nature of investor motivations. As there is no significant relationship found between precautionary motives and investment decisions (p > 0.05), it urges caution and highlights the need for informed decision-making. ANOVA tests further highlight the findings, emphasizing the significance of investors’ experiences while rendering demographic factors such as gender, age, education, or formal training irrelevant in stock market decision-making. Research limitations/implications. This study implies that investors’ motives drive their investment decisions, regardless of their background. The high value of investment experience underlines the importance of practical exposure in investor decisions. Originality/value. This study uniquely reveals that speculative and transactional motives, rather than demographic factors, drive investment decisions among Nepalese investors. Employing an exploratory and causal-comparative approach, it underscores the critical role of investment experience. These findings offer new insights, emphasizing the need for regulatory agencies and market-listed companies to enhance awareness and provide tailored investment options. [ABSTRACT FROM AUTHOR]

This article aims to shed light on the effects of financial constraints on the value shareholders attribute to cash holdings in firms listed on the Brazilian stock exchange, where corporate law determines that publicly listed companies set aside part of their annual profits for dividend payments. While prior empirical literature provides evidence that cash holdings are more valuable for financially constrained companies than for their unconstrained counterparts, we cannot support the hypothesis that the market value of cash increases as obtaining access to external funds becomes more difficult. Our analysis also reveals that constrained companies do not hold significantly higher cash savings than their unconstrained peers. This last result, in turn, is not in line with the precautionary motive for having cash. Moreover, although the principal argument for adopting mandatory dividend rules in Brazil was to increase the protection of minority shareholders, we observe that the contribution of cash holdings to firm value is still small in Brazil, especially in dual‐class companies, because investors expect cash holdings to be partly consumed as private benefits due to the presence of significant agency problems. This research is relevant because it serves as an additional step in understanding how a legal mechanism established by a government to protect investors affects the contribution of cash holdings to firm value. Governments that intend to adopt mandatory dividend rules to safeguard the cash‐flow rights of minority shareholders can use our findings to make better decisions regarding whether to enforce compulsory dividend payments. [ABSTRACT FROM AUTHOR]

The author examines the features of the management policy and the monetary policy of the state on the profitability of the activities of Russian public companies (business profitability). The tightening of the monetary policy of the state (in particular, the growth of the key rate of the Bank of Russia without reference to the return on assets) may negatively affect the profitability of economic activity. The indicator of dividend payments is a signal for shareholders and potential investors. In addition, dividend payments are an indicator of the financial limitations of companies. Financial constraints are associated with the problem of adverse selection of financing - the choice of a source of financing taking into account its price. Effective management of current assets will allow rational use of them as an additional source of investment. The indicator of the contribution of management or internal growth allows you to evaluate external factors: market fluctuations, macroeconomic features, as well as the actions of financial speculators. This indicator establishes the real contribution of management to the value of the company. Systematic unprofitability of the company’s economic activity is a consequence of short-sighted financial policy or erroneous strategic decisions on the part of management. Management acts in accordance with fiduciary duties of integrity and reasonableness in the interests of the company and its shareholders expecting an increase in the value of the business. Therefore, the management decision should be made from the position of maximising market capitalisation. Then Russian public companies will act in the logic of a precautionary motive, saving a significant part of the funds for subsequent investment in priority projects under conditions of financial restrictions and sectoral sanctions. The growth of sales provides additional opportunities for the company to invest. The Wald, Breusch – Pagan and Hausman tests were carried out in order to identify an adequate forecasting model.

Research Purpose. The purpose of research is analyzing the effect of foreign institutional ownership on cash holding, based on precautionary motive. Research Method. This research uses quantitative methods, with single independent variables (foreign institutional ownership). Cash holding (dependent variable) measured using the formula logaritma cash and cash equivalents. Population used in the study is all non-financial companies listed on the Indonesia Stock Exchange 2017-2019. The purposive sampling method used and obtained 1170 firm-year samples. Secondary data sourced from annual reports and financial statement and data analyzed using multiple linear regression analysis with variabel control (leverage). Research Result and Findings. The results of this study indicate that the foreign institutional ownership has positive effect on cash holding.

The paper examines how economic policy uncertainty and financial development affect a firm's cash-holding policy before and after the global financial crisis. Using Chinese nonfinancial firm data from 1997 to 2018, we obtain three main findings. First, economic policy uncertainty increases corporate cash holdings and its sensitivity to operating cash flows. Second, financial institution and market developments reduce corporate cash-holdings' cash flow sensitivity. Third, the impact of economic policy uncertainty on corporate cash-holdings' sensitivity to operating cash flows decreases with financial development. Firms adjust their cash-holding policy in response to changes in economic policy uncertainty and financial development, indicating that macroeconomic factors determine the precautionary motive for holding cash. [ABSTRACT FROM AUTHOR]

• Litigation risk is positively correlated with corporate cash holdings. • The positive relationship is more pronounced for firms with long-tenured CEOs as they are more risk averse. • By illustrating the implications of litigation risk, this study provides valuable practical implications for investors, managers, and policymakers. Cash holdings represent a crucial decision that can affect the efficiency of a firm's cash usage and, ultimately, shareholder value. Taking advantage of a comprehensive sample of China's A-share listed companies from 2012 to 2022, this research examines the relationship between litigation risk and corporate cash holdings. In line with the precautionary motive, we discover robust evidence that litigation risk is positively correlated with corporate cash holdings. Moreover, we document that the positive relationship is more pronounced for firms with long-tenured CEOs, as they are more risk averse. Our findings are robust to a series of sensitivity analyzes. Overall, this study contributes to the literature on litigation risk and corporate cash holdings, and generates valuable practical implications for investors, managers, and policymakers. [ABSTRACT FROM AUTHOR]

It is a truism of neoclassical economics that a sufficiently high savings rate will be bad if it is dynamically inefficient. Here we consider a Solow model in which households follow a savings rate dictated by a social planner. Ideally, the social planner would instruct households to save at the Golden Rule savings rate that maximizes consumption per capita, but this advice needs to be adjusted when the social planner has imperfect control over how much households actually save. Analogous to what happens with precautionary saving at the household level, in this case, the social planner will maximize social welfare by targeting a savings rate higher than the Golden Rule. Precautionary social planning then yields a dynamically inefficient allocation, albeit with greater stability of consumption, which is often a stated priority of social planners. [ABSTRACT FROM AUTHOR]

The author considers features of influence of finance solutions of management of the Russian public companies on debt policy. In a research are included indicators of internal growth and dividend payments by means of which it is possible to estimate corporate financial policy. Internal growth is the indicator of regulation of debt strategy, the including mechanism of precautionary motive. The dependence of the share price on the market value of assets defines installation of communication between the economic interests of shareholders and finance solutions of management. The indicator of dividend payments allows to estimate influence of external negative effects (shocks) on behavior of investors at profit assessment. Increase in dividend payments is connected with their financing from an external source. Management works in logic of precautionary motive, keeping a part of profit for further debt repayment before creditors. The management of the Russian companies not only influences the share price, but also regulates the level of a debt load. The company can use dividend payments on reinvestment of assets (as an investment resource). The author shows as the Russian public companies, solve a problem of adverse selection, switching to cheaper financing sources. The value of a debt is connected with the level of investment into the company. Pledge (property providing) is a guarantee for creditors. As, getting access to debt financing, the company provides to the creditor the complete information about property, thereby, reducing the risks connected with attraction of a debt. The Russian public companies react to changes of debt increase in value of size of assets that will be approved with recapitalization of the company (change of the capital structure due to debt increase and its use for dividend payouts to shareholders).

We examine the downstream effect of cash holdings along the supply chain. Using a supplier-customer sample from 1989 to 2009, we find evidence that a supplier's large cash holdings increase its customers' demand for cash reserves, suggesting that the negative risk spillover effect dominates the positive trade credit effect from a supplier to its customers. This finding is robust to alternative specifications of Two-Stage Least Squares, and the positive downstream impact on cash holdings is amplified during the financial crisis. We also find that the effect is stronger under the condition of a more substantial risk spillover effect or a weaker trade-credit effect. [ABSTRACT FROM AUTHOR]

I use a matched buyer–supplier sample of U.S. industrial firms to investigate the impact of customer risk on suppliers' choice between cash and credit lines. I show that customer risk decreases the reliance on bank-managed liquidity insurance relative to cash. I also find evidence indicating that firms actively shy away from credit lines in response to customer risk to maximize the future availability of their liquidity reserves. Consistently, my findings suggest that high-customer-risk firms are particularly more likely to be subject to (stricter) borrowing base provisions, which tie the value of a credit line to that of some eligible collateral (notably accounts receivable). I also find that steeper credit line spreads alone cannot explain firms' response to customer risk. These results highlight how customer–supplier relationships affect the precautionary demand for liquidity, and significantly shape corporate financial decisions. [ABSTRACT FROM AUTHOR]

The paper enriches the existing literature on financial intermediaries' operations in the face of uncertainty by empirically examining the impact of banking uncertainty on banks' security holdings. Using bank-level data in Vietnam during 2007-2019 to compute a micro uncertainty proxy based on the dispersion of bank shocks, we document that banking uncertainty tends to enhance total security holdings at banks. Decomposing aggregate securities into disaggregate components, we find that safer investments (including government bonds and financial institution bonds) dominate the overall impact of banking uncertainty on security holdings, which completely offset a drop in the volume of riskier investments (including corporate bonds and stocks) in times of higher uncertainty. Furthermore, our analysis reveals that the impact of banking uncertainty on all security holdings is stronger at riskier banks, thereby implying that bank behavior is likely attributable to the precautionary motive. [ABSTRACT FROM AUTHOR]

We examine the impact of strategic deviance on corporate cash holdings and find that firms with strategies that deviate from their industry peers hold more cash. This pattern can be consistent with an agency motive, a precautionary motive, or both. We show that the value of cash holdings decreases with strategic deviance and that the cash effect of strategic deviance increases with agency costs but not with financial constraints, consistent with an agency motive. Finally, we find that strategically deviant firms pay lower dividends and avoid more taxes, both of which can potentially contribute to cash holdings. We conclude that strategically deviant firms hold more cash due to an agency motive. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

This paper introduces a two‐period monetary general equilibrium model with proportional transaction costs on nominal and inflation‐indexed bonds. This paper demonstrates that financial innovation on indexed bonds causes equilibrium interest rates of the nominal bond to increase when agents have precautionary saving motives. This result implies that ignoring precautionary motives would underestimate savers' welfare gain and overestimate borrowers' welfare gain from innovation on indexed bonds. [ABSTRACT FROM AUTHOR]

Precautionary-motive theory implies that corporate cash holdings should be valued at a premium during recessions when uncertainty is high. However, from an agency-conflict perspective, business downturns aggravate agency problems, and investors tend to discount the value of corporate cash holdings during recessions. We test two hypotheses derived from these competing perspectives by examining the value of cash across different phases of the business cycle, using a sample of firms from 41 economies over the 1991–2016 period. Our results show that $1 of cash is valued about $0.67–$0.70 higher during a boom than during a recession, supporting the agency-conflict hypothesis. Our analyses show that this effect is not sensitive to national uncertainty-avoidance tendencies but varies with different levels of investor protection. These results confirm that investors discount the value of cash during recessions due to concerns about severe agency conflicts, and that investor protection mitigates this discount. [ABSTRACT FROM AUTHOR]

The aim of the present work is an attempt to estimate the effect of financial flexibility on the amount of cash reserves with the influence of the hypothesis of precautionary motives, in other words, to get the answer -how do companies manage liquid resources in response to various obstacles (shocks in foreign markets) related to financing. For the evaluation of monetary policy it is introduced the indicator (internal growth of the company value), whereby it is possible to estimate the contribution of the management team in effective cash management. The model considered in this work is tested to define its adequacy and quality prediction.

Features of influence of opportunity cost on the cash policy of the Russian companies are considered. The author analyzes relationship of cause and effect of escalating of cash. The author researched features of a choice the Russian companies of sources of financing. The author shows that availability of opportunity costs forces the companies to be reoriented on internal sources of financing. Opportunity costs are the indicator for a choice of optimum financing. The model (specification) presented in work is tested for determination of its adequacy, from the point of view of quality of forecasting. It is estimated three kinds of specifications: pooled regression, regression with a random effect and regression with the fixed effect. The purpose of work attempt to open cash puzzle of company disclosing of a puzzle. That is, to reduce opportunity costs for preserving of cash as the preventive motive, allowing to struggle with financial restrictions. Novelty of the presented work consists that the companies can rationally manage cash holdings, using negative shocks (signals) in the capital market, to expect them and without supposing the situations connected with financial restrictions.

This study investigates how mispricing and financing constraints affect firms' future capital investments. We find that when the financing constraints are high, overpriced (underpriced) firms invest more (less) subsequently under previous non-optimal investments. The overpriced (underpriced) firms with precautionary motives invest significantly less subsequently when they are financially constrained. The overall evidence suggests that share mispricing, financial constraints and precautionary motives play a critical role that enables investors to less effectively monitor managers' real decisions, thus limiting firms' capital investments. [ABSTRACT FROM AUTHOR]

We examine how corporate cash management in Korea has evolved during the COVID-19 crisis, focusing on the interaction between COVID-19-related uncertainty and financing frictions. Compared with the 2008 global financial crisis, massive expansionary financial policy measures have resulted in low external financing costs shortly after the early negative shocks to external financing. This provides a unique opportunity to investigate the separate effects of uncertainty and financing frictions on corporate cash holdings. Consistent with the precautionary motive for cash holdings, we find that firms reserve more cash in 2020 in response to the increased uncertainty; this is especially the case if they are negatively affected by the COVID-19 crisis and financially constrained. However, unaffected firms with better access to financial markets and internal capital markets also increase their cash holdings. The COVID-19 pandemic does not systematically change corporate cash management policies. In 2021, firms decrease their cash holdings as uncertainty declines. Overall, our evidence implies that uncertainty is the primary determinant of corporate cash management decisions, whereas financing frictions play a secondary role. We discuss the policy implications of the amplified inequality between financially constrained and unconstrained firms resulting from massive expansionary financial policy measures. • COVID-19 uncertainty is the primary determinant of cash management. • Expansionary financial policies mitigate uncertainty's effect. • Financially constrained firms reserve cash to cope with uncertainty. • Among firms not suffering from the COVID-19 crisis, unconstrained firms hoard cash. • Expansionary policies widen the inequality among constrained and unconstrained firms. [ABSTRACT FROM AUTHOR]

This paper analyzes the impact of health insurance on household portfolio choice. Using the U.S. Survey of Consumer Finance and Health Retirement Survey databases, it finds that insured households are more likely to own stocks and invest a larger proportion of financial assets in stocks than uninsured households do. The results remain strong even after controlling for household characteristics and reverse causality. Further, the results are robust across different survey years and data sources. It suggests that a precautionary motive is strong in household portfolio choice decisions. [ABSTRACT FROM AUTHOR]

Using a quantile regression approach with a sample of Korean firms, this paper empirically investigates whether cash holding behaviors with the precautionary motive are different between Chaebol and non-Chaebol firms and they have changed before and after the financial crisis. We obtain the following empirical results. First, for non-Chaebol firms, the precautionary motive plays an important role in determining cash holdings throughout the sample period. In contrast, there is no empirical evidence supporting that Chaebol firms hold cash with the precautionary motive in the pre-crisis period: This motive becomes important only in the post-crisis period. Second Chaebol firms' cash holdings with the precautionary motive are different from those of non-Chaebol firms in the pre-crisis period, but not in the post-crisis period. These imply that after experiencing financial crisis, Chaebol firms' cash holding strategy has been changed substantially in a way to become more cautious in dealing with cash flow (CF) volatility. [ABSTRACT FROM AUTHOR]

International Reserves has gained significance over the past two decades either as a precautionary motive or transaction motive. The countries, most particularly, developing nations shown much interest in holding reserves than developed nations. The reason behind this was, having more reserves in their treasury can certainly raise their worthiness among other nations. The Indian international reserves has grown and been growing since the introduction of liberalization policy 1991, at a rapid pace. The present study tries to analyse whether the pace of international reserves have concerned effect on Exchange Rate and Gross Domestic Product in India after 1991 or not. The study further attempted to find out the evaluation of long run relationship exists between international reserves, Exchange Rate and Gross Domestic Product. The study identified the positive long run relationship exists between the international reserves Exchange Rate and Gross Domestic Product in India. Hence, the international reserves accumulation having impact on Gross Domestic Product and Exchange Rate in India. [ABSTRACT FROM AUTHOR]

This paper develops a bank model to study supply-driven contractions in credit or credit crunches. In the model, the bank is affected by financial frictions in raising external funds. These frictions imply that the bank repairs its balance sheet only gradually following a negative shock that weakens the bank's capital position. Consequently, there is persistency in the response of bank lending even when the original shock (productivity or interest rate) is i.i.d. The nonlinear nature of these financial frictions also generates (i) a precautionary motive even with risk-neutral shareholders: the bank increases its desired level of capital if risk increases; (ii) an asymmetric response of lending: negative disturbances can have a bigger impact than positive ones; and (iii) volatility clustering in risk spreads and the bank's share price. [ABSTRACT FROM PUBLISHER]

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This study identifies the financial characteristics that tend to distinguish cash-rich from cash-poor publicly traded US restaurant firms operating in the 1999-2010 period. The resulting logistic regression model, developed from a forward stepwise selection procedure, is able to classify sampled firm-year observations into cash-poor and cash-rich groups with a 73.4% accuracy rate. The authors find that cash-rich restaurant firms tend to have greater investment opportunities, which make cash in hand appealing. However, cash-poor restaurants are more likely to be larger, to hold more liquid-asset substitutes, to make greater capital expenditures and to display more robust cash flows - characteristics that enhance borrowing power and/or reduce the need to hoard funds. Hence, the findings suggest a prominent role for the precautionary and transaction motives in restaurant cash-holding decision making. [ABSTRACT FROM AUTHOR]

Abstract: This study examines the determinants of cash-holding levels for restaurant firms. After examining a panel data set obtained from 125 publicly traded US restaurant firms between 1997 and 2008, the study provides evidence that restaurant firms with greater investment opportunities tend to hold more cash. At the same time, large restaurant firms, firms holding liquid assets other than cash, firms with higher capital expenditures, and firms paying dividends were shown to hold less cash. The results are generally supportive of the trade-off theory of cash holdings. In particular, both precautionary and transaction motives play important roles in explaining the determinants of cash holdings for restaurant firms. [Copyright &y& Elsevier]

This paper empirically investigates the importance of precautionary and mercantilist approaches to international reserves in the Indian context using monthly data from 1993:06 to 2007:03. The ARDL approach to cointegration is used to estimate as in the long-run relationship between reserves and its determinants. The empirical results show that the impact of the volatility of Foreign Institutional Investment which captures the precautionary motive, and that of undervalued real exchange rate which is associated with the mercantilist view on reserves are statistically significant in the long run. We conclude that both the precautionary and mercantilist motives explain reserve accumulation in India over the study period. [ABSTRACT FROM AUTHOR]

This paper investigates the determinants of cash holdings for a comprehensive sample of Swiss non-financial firms between 1995 and 2004. The median Swiss firm holds almost twice as much cash and cash equivalents as the median US or UK firm. Our results indicate that asset tangibility and firm size are both negatively related to corporate cash holdings, and that there is a non-linear relationship between the leverage ratio and liquidity. Dividend payments and operating cash flows are positively related to cash reserves, but we cannot detect a significant relationship between growth opportunities and cash holdings. Most of these empirical findings, but not all of them, can be explained by the transaction costs motive and/or the precautionary motive. Analyzing the corporate governance structures of Swiss firms, we document a non-linear relationship between managerial ownership and cash holdings, indicating an incentive alignment effect and an opposing effect related to increasing risk aversion. Finally, our results suggest that firms in which the CEO simultaneously serves as the COB hold significantly more cash. [ABSTRACT FROM AUTHOR]