Title

Determinants of Corporate Cash Holdings and its Implication: Evidence from Pakistan’s Corporate Sector.

Abstract

This study examines the determinants of corporate cash holdings and their implications for nonfinancial firms by pursuing three main objectives. The first objective examines firm­specific factors that determine the optimal level of corporate cash holdings. The second objective necessitates re­analyzing the effect of corporate governance on corporate cash holdings and the third objective examines cash holding behavior under macroeconomic uncertainty. Results on the determinants of corporate cash holdings, using firm specific factors, is consistent with some of the theories such as information asymmetry theory, financial distress hypothesis and the transaction costs hypothesis that suggests that the higher fixed processing fee for obtaining external financing discourages smaller firms to go for external financing and hence prompting them to hold more liquid assets. Nevertheless, these results support the argument of Opler et al. (1995). They suggest that larger firms have more capac