Corporate Governance and Cash Holdings

2. Cash Holding: Definition

Cash is the first asset account listed on a statement of a firm’s financial position. The amount of cash is of interest to different stakeholders, such as existing and potential investors, lenders, and creditors. Investors use cash as a proxy for liquidity. Cash holdings, also referred to as cash hoardings, are defined as the level of cash and cash equivalents that are highly liquid assets that a firm can convert into cash in a short period of time (Ferreira & Vilela, 2004). Cash equivalents include the firm’s bank accounts, Treasury bills, and commercial paper as well as money market securities that have a maturity of 90 days. There are variations among countries in terms of the percentage of the level of cash. For instance, cash holdings can range from 8% to 12% in the UK, 8% to 17% in the US (Al-Najjar, 2013), and are 18.5% in Japan (Pinkowitz & Williamson, 2001). Also, the percentage ranges from 10% to15% in Switzerland (Drobetz & Grüninger, 2007), 7% to 9% in Spain (García-Teruel & Martínez-Solano, 2008), 9% to 10% in Italy (Bigelli & Sánchez-Vidal, 2012), and 10% to 13% in Turkey (Hassanein & Kokel, 2019). The variations in the levels of corporate cash holdings among countries may be due to differences in the corporate governance systems (Drobetz & Grüninger, 2007).