Determinants of Corporate Cash Holdings: Evidence from MNCs in Pakistan

Abstract

The purpose of this article is to investigate whether firm-specific variables (i.e. size, growth opportunities, profitability, capital expenditures, leverage, dividends, cash flow and working capital) affect the cash holdings of MNCs. Moreover, to investigate whether theories relevant to cash holdings provide any justification to narrate the cash holding behavior of listed MNCs on Pakistan Stock Exchange (PSX) for the period 2006-2016. Results indicate that profitability positively impacts cash holdings. Firm size positively impacts cash holdings in pooled Ordinary Least Squares, while it negatively impacts cash holdings in the fixed effects method; however the relationship is insignificant. Leverage, growth opportunities, dividends, working capital ratio and capital expenditures are significant and negatively related to corporate cash holdings. Finally, cash flows are unrelated to cash holdings. In short, results indicate that firm-specific variables significantly affect the cash holdings of MNCs. Moreover, (+/-) coefficients of different explanatory variables indicate that theories relevant to cash holdings provide some support to explain the cash holding behavior of MNCs in an emerging economy - Pakistan.