The Role of Financial Position and Leverage in Cash Holdings Adjustment Speed Using the Dummy Variable and Dynamic Threshold Models

Document Type : Original Article

Authors

1 Ph.D. Student, Department of Accounting, Babol Branch, Islamic Azad University, Babol, Iran

2 Department of Management, Babol Branch, Islamic Azad University, Babol, Iran

3 Department of Accounting, Babol Branch, Islamic Azad University, Babol, Iran

4 Department of Economic, Babol Branch, Islamic Azad University, Babol, Iran

10.30495/ijfma.2023.21144

Abstract

Cash is a crucial resource for businesses, and balancing available cash and needs is the most important business health factor. Therefore, companies seek an optimal cash level according to cost-benefit analysis to maximize their value; and determining optimal cash holdings, target cash holdings adjustment speed, and the effect of firm-specific characteristics are incredibly important to managers. The present study aims to test asymmetric models of cash holdings adjustment speed according to financial positions and leverage. In this regard, 117 firms listed on the Tehran Stock Exchange were selected and their 2009-2018 financial information was analyzed. The findings of asymmetric models are shown and suggest that among firms with high fiscal deficit and leverage, firms with high cash regime reach optimal cash holdings faster than firms with low cash regime. The results indicate an optimal level of cash holdings that allows firms to optimally deviate from target cash holdings. Also, when firms leave the optimal range of cash holdings, rapid adjustments are partial and asymmetric.

Keywords

References

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