Cash Holdings in Private and Public Firms: Evidence from Europe
Dr Jongmoo Jay Choi, Temple University, Department of Finance
21st May 2013 11:20 am - Room 214/215 Economics and Business Building
In this paper, we examine the differences in cash holdings between publicly and privately held firms in 33 European countries during 2002-2011 and shed light on the cash holding behaviors of private firms in Europe. We find that European public firms on average hold more cash than private firms. This finding is robust in various model settings. We also show that during the recent European financial crisis, firms in Euro-zone countries increased their cash holdings, whereas firms in non-Euro countries decreased their cash holdings.
This signifies the presence of Euro policy coordination risk. Furthermore, we find that public firms hold more cash than private firms in Euro-zone countries than in non-Euro countries, indicating greater precautionary demand for cash by public firms in Euro countries. We also find that firms in countries with better shareholder protection hold less cash. Moreover, we show that both public and private firms in Europe actively adjust to target levels of cash, and both public and private firms show significant cash flow sensitivity to cash holdings.