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Abstract(s)
Despite growing academic and media interest in cash management, little is known about the cash-holding behavior of private firms, particularly in emerging economies, and the influence of the cost of carrying cash on their cash levels. This study addresses this gap by analyzing the determinants of cash holdings in private and public companies within the Latin American setting. Additionally, it investigates whether Latin American private firms maintain lower or higher cash holdings than their public counterparts. The findings challenge Keynes’ (The general theory of employment, interest and money, McMillan, London, 1936) precautionary motive for holding cash, demonstrating that private firms hold significantly lower cash levels than public firms under conditions of costly external financing. This disparity is attributed to the elevated costs of carrying cash stemming from restricted access to external funding, higher transaction costs, and pronounced information asymmetry, which amplify cash management challenges for private firms. The findings persist across various robustness checks, including propensity score matching and Heckman’s (Econometrica 47:153–161, 1979) two-step treatment effect model. Our research contributes to the literature on cash holdings by highlighting the crucial role of the cost of carrying cash in shaping cash levels in private versus public companies. By presenting a theoretical framework that explains the divergent cash-holding behaviors between private and public companies, our study provides a detailed understanding of the determinants of cash management decisions. The insights presented enrich the discussion of cash management and underscore the unique challenges private firms face in emerging markets.
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Keywords
Agency conflicts Cash holdings Emerging markets Financial constraints Private firms