Cash holdings in European manufacturing firms

This paper investigates the determinants of corporate cash holdings from 1999 to 2008, using a large database of all manufacturing firms listed on the stock exchanges of 8 European countries. We test the findings of the predominantly American literature that cash holdings have changed because firm characteristics have changed. Our analyses support the conclusions from the litterature that cash holdings are negatively related to net working capital, capital expenditures and leverage. But we cannot confirm the American findings regarding the relation between cash holdings and cash flow, the market-to-book ratio and dividends. These results are more comparable with findings from other studies on European countries. Moreover, contrary to the American findings, neither cash holdings themselves nor their determinants have changed much in our sample.