The Impact of Inflation and Operating Cycle on the Corporate Cash Holdings in South-East Europe
Journal Title: Management: Journal of Sustainable Business and Management Solutions in Emerging Economies - Year 2019, Vol 24, Issue 2
Abstract
Research Question: This paper investigates the influence of the inflation and operating cycle on the corporate cash holdings. Motivation: In an early study, Keynes (1936) provides a theoretical foundation for determining the optimal cashlevel as a balance of costs and benefits of cash holdings. However, the optimal corporate cash amount is not only dependent on many company-specific factors (Opler et al., 1999), but it is also associated both with the corporate governance structure and the institutional and macroeconomic environment (Ozkan and Ozkan, 2004). Anand et al. (2018)confirmed the impact of a set of macroeconomic factors, but recent studies distinguished inflation as a critical factor of thechanges of the company cash holdings (Curtis et al., 2017). Idea:The main idea of the paper is to examine whetherinflation as a crucial macroeconomic factor and the operating cycle as a vital microeconomic factor have substantial influence on the corporate cash holdings, and which direction this impact may take. Data: We used company financial data from a sample of 868 publicly traded firms from ten South-East European countries between the years of 2006 and 2015,obtained from the Thomson Reuters Data stream database.Tools: We apply a balanced panel regression model involving the yearly change of the cash ratio as a dependent variable, and the country CPI, the operating cycle and other firm-specific control variables as explanatory variables. Findings: Results confirm that both the inflation and the operating cyclehave a substantial influence on the change of the corporate cash holdings. The relationship of the change in cash and the inflation is non-linear and best described by a U-shaped curve. At the same time, there is a straight linear relationship between the change in cash holdings and the operating cycle. Moreover, we have found that the changes in the corporate cash holdings are positively related with the size of the company, the operating cash flow and the capital expenditures,but inversely related with the change of the networking capital and the change of short and long-term debt.Contribution:This paper reveals the effect of macro-control policies on corporate cash holdings, and, most importantly, it provides a reference for corporate managers to optimise the allocation of resources based on changes in the macro-financial environment and their own financial circumstances.
Authors and Affiliations
Aleksandar Naumoski, Péter Juhász
Keywords
Related Articles
- EP ID EP631579
- DOI 10.7595/management.fon.2018.0026
- Views 92
- Downloads 0
Book review of: Misbehaving: The Making of Behavioral Economics
Book review of: Misbehaving: The Making of Behavioral Economics (2015). By Richard H. ThalerW.W. Norton Company, Inc. 500 Fifth Avenue, New York, NY 10110, 434 pages, ISBN 978-0-393-08094-0, ISBN 978-0- 393-24677-3 (e-bo...
Examining the Value of Monte Carlo Simulation for Project Time Management
Research Question: This paper investigates whether the Monte Carlo simulation can be widely used as a practicable method for the analysis of the risks that impact project duration. Motivation: The main goal was to explor...
Consumer Ethnocentrism – Marketing Challenge for Companies: The Case of Serbia
Research Question: This paper examines consumer ethnocentrism (CE) as marketing challenge for companies. Motivation: The purpose of the paper is to examine the antecedents and consequences of CE, who high-ethnocentric co...
An FAHP-TOPSIS framework for analysis of the employee productivity in the Serbian electrical power companies
The aim of this paper is to apply an integrated model, which combines methods of classical and fuzzy Multi-criteria decision making (MCDM) in selected six large equity companies from the Serbian energy sector. The data c...
Research on scholarships holders who studied abroad and returned to Serbia
Knowledge has become the most valuable resource of the new era and the resource of the future. The intention of this study is to improve knowledge about the problem of migration of educated people from Serbia from the pe...