Determinants of cash holdings : Evidence from manufacturing firms listed on HCM stock exchange
Abstract
Although the issue relating to cash holdings has been widely discussed in
many previous studies, when it comes to Vietnam or other developing countries, there are
still several unique features that the researchers have to take into consideration. A high
amount of short-term debts and inefficient court system in developing countries are two
typical examples. Therefore, this study is conducted with the attempt to examine the
behaviors of cash holding in Vietnam manufacturing firms. A sample of 48 listed
companies on HoSE during the period 2009-2013 are collected and analyzed with Fixed
Effect Model. Trade-off Theory, Pecking Order Theory, Free Cash Flow Theory
associated with some distinct characteristics of Vietnam’s economy will help explain the
result of the test. It is reported that firms carry smaller cash balances when the levels of
leverage, growth opportunity, dividend payment, liquidity and cash flow volatility
increase. More interestingly, though ignored by other studies, financial distress turns out
to have positive relationship with cash balances. We found no evidence for the
relationship between cash holdings and debt maturity, profitability, size.
Key words: Cash Holdings, Vietnam manufacturing firms, Short-term Debts,
Fixed Effects model, Financial Distress.