Determining the factors of cash holdings – the case of Romanian non-financial companies

Iuliana Oana  Mihai; Riana Iren Radu; Bogdan George  Dragan

doi:10.23762/FSO_VOL6_NO3_4

Published : 2018-09-14

Vol. 6 No. 3 (2018)

Determining the factors of cash holdings – the case of Romanian non-financial companies

Iuliana Oana Mihai

Riana Iren Radu

Bogdan George Dragan

DOI: https://doi.org/10.23762/FSO_VOL6_NO3_4

Abstract

The significant increase in company cash holdings has drawn the attention of the academic world. As a result, there is now extensive academic literature which investigates the relationship between cash holdings and their impact on corporate performance and company values. The study focuses on the motives, determinants and theories of cash holdings. The main objective of the paper was to investigate the determinants of cash holdings for Romanian companies for the period 2006-2015. The findings suggest that, for nonfinancial companies, cash holdings are influenced by the state of the economy. In times of recession, cash could be a good way to ride out the storm without having to ask for extra funding. Thus, companies tend to use internally generated cash before seeking external financing. In order to analyse the determinants of cash holdings, this study makes use of company level data for listed companies on the Bucharest Stock Exchange (BSE). The data was gathered from multiple sources; however the main source was the Amadeus database, which comprises data on almost 20 million companies in Europe. This database allows the user to search by multiple criteria (for instance: geographic, NACE codes, financial criteria, ownership, etc.). The data in the database is collected by the supplier of this database, Bureau van Dijk, therefore the data is reliable. Other data necessary for the study was gathered from the BSE website, the website of the Central Depository – an institution adjacent to the BSE - or was extracted from the individual financial reports available on the webpages of the companies.

Keywords:

cash holdings, trade-off theory, pecking order theory, agency costs, assets

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Mihai, I. O. ., Radu, R. I., & Dragan, B. G. . (2018). Determining the factors of cash holdings – the case of Romanian non-financial companies. Forum Scientiae Oeconomia, 6(3), 53–65. https://doi.org/10.23762/FSO_VOL6_NO3_4

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Iuliana Oana Mihai

oana.anghel@ugal.ro

Affiliation:

Dunarea de Jos University of Galati, Romania Romania

Bio Statement (e.g., department and rank)

Iuliana Oana Mihai has been a member of the Faculty of Economics and Business Administration at Dunarea de Jos university of Galati since 1999. She completed her Ph.D. in Accounting at Alexandru Ioan Cuza university of Iasi and she was also a postdoctoral fellow at the Romanian Academy, Bucharest. Her research focuses on international accounting, foreign ownership, and international financial reporting standards. Mrs Mihai is a chartered accountant, a member of the Body of Experts and Chartered Accountants of Romania, and also a financial auditor and member of the Chamber of Financial Auditors in Romania. She is also a member of the European Accounting Association.

Riana Iren Radu

raduriana@gmail.com

Affiliation:

Dunarea de Jos University of Galati, Romania Romania

Bio Statement (e.g., department and rank)

Riana Iren Radu has been a member of the Faculty of Economics and Business Administration, at Dunarea de Jos university of Galati since 1998. She completed her Ph.D. in Management at Dunarea de Jos university of Galati. Her research focuses on accounting, financial management, and business administration. Mrs Radu is an authorized valuer, member of the National Association of Romanian Authorized Valuers and a practitioner in the reorganisation of companies, and a member of the National union of Insolvency and Reorganisation Practitioners in Romania. She is also a member of the European Accounting Association.

Bogdan George Dragan

dragangeorgebogdan@yahoo.com

Affiliation:

Dunarea de Jos University of Galati, Romania Romania

Bio Statement (e.g., department and rank)

Bogdan George Dragan has been a member of the Faculty of Economics and Business Administration, at Dunarea de Jos university of Galati since 2017. He has completed a PhD in management at university Valahia of Targoviste, Romania.