Firms cash management, adjustment cost and its impact on firms’ speed of adjustment-A cross country analysis

Research output: Contribution to journalArticle

Abstract

We investigate the firms’ specific attributes that determine the difference in speed of adjustment (SOA) towards the cash holdings target in the Scandinavian countries: Denmark, Norway and Sweden. We examine whether Scandinavian firms maintain an optimal level of cash holdings and determine if the active cash holdings management is associated with the firms’ higher SOA and lower adjustment costs. Our findings substantiate that a higher level of off-target cost induces professional managers to rebalance their cash level towards the optimal balance of cash holdings. Our results reveal that Scandinavian firms accelerate SOA towards cash targets primarily for the precautionary motive. Moreover, our results show that SOA is heterogeneous across Scandinavian firms based on adjustment cost and deviate cash holdings towards the target mainly with the support of internal financing. Furthermore, our empirical findings show that the SOA of Norwegian firms is significantly higher than the Danish and Swedish firms.

Original languageEnglish
Pages (from-to)(In-Press)
Number of pages36
JournalReview of Quantitative Finance and Accounting
Early online date8 May 2020
DOIs
Publication statusE-pub ahead of print - 8 May 2020

Keywords

  • Cash holdings
  • GMM
  • Scandinavian countries
  • Speed of adjustment
  • Trade-off theory

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance

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