For the first time, this paper examines the way in which cash holdings affect firm operating performance in a wide sample of European small and medium-sized enterprises (SMEs). Our results suggest that cash holdings have a positive effect on operating performance, supporting the relevance of precautionary savings motive for SMEs. Maintaining a buffer of money on hand, ready for use in any contingency, has a relevant positive effect that overcomes potential opportunistic problems. Moreover, we find that firm-specific characteristics, such as debt, size, age, growth opportunities, and ownership concentration, moderate our baseline relationship. In addition, the study also demonstrates that cash holdings have a stronger positive effect on operating performance in poorer institutional contexts. Notably, we also find that the stock of cash had a relevant role in supporting firm performance during the recent global financial crisis. Finally, we report additional analyses to corroborate our baseline results.

Cash holdings and SME performance in Europe: the role of firm-specific and macroeconomic moderators

La Rocca, Maurizio
Primo
;
Staglianò, Raffaele;La Rocca,Tiziana;
2019

Abstract

For the first time, this paper examines the way in which cash holdings affect firm operating performance in a wide sample of European small and medium-sized enterprises (SMEs). Our results suggest that cash holdings have a positive effect on operating performance, supporting the relevance of precautionary savings motive for SMEs. Maintaining a buffer of money on hand, ready for use in any contingency, has a relevant positive effect that overcomes potential opportunistic problems. Moreover, we find that firm-specific characteristics, such as debt, size, age, growth opportunities, and ownership concentration, moderate our baseline relationship. In addition, the study also demonstrates that cash holdings have a stronger positive effect on operating performance in poorer institutional contexts. Notably, we also find that the stock of cash had a relevant role in supporting firm performance during the recent global financial crisis. Finally, we report additional analyses to corroborate our baseline results.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11570/3132418
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