DETERMINANTS OF CASH HOLDINGS: EVIDENCE FROM BALKAN COUNTRIES

Abstract

The purpose of this paper is to identify the determinants and indicate their impact on the company’s cash holdings in the wholesale industry in ten Balkan countries. Effective cash holdings management is key to any company’s healthy and smooth business operation, so comprehending and analyzing the relationship between the company’s internal determinants and cash holdings is vital. The sample used for this work included 106 companies, whose operations were studied over a four-year period (2014–2017), using the panel data model with fixed effects. The obtained results showed that three of the five observed variables (size, leverage, non-cash liquid assets, profitability and asset tangibility) have a statistically significant impact on the company’s cash holdings. It was determined that larger wholesale companies generally hold less cash, primarily due to more favorable external sources of financing, thus, financially stronger wholesale companies on the Balkans are likely to hold less cash. Only by practicing adequate inventory management and receivables collection policy can wholesale companies ensure effective working capital, leading to the fact that more profitable wholesale companies hold more cash. The realized profit of wholesale companies is used to increase liquidity as well as to stimulate business growth and development. The research results revealed that, in order to achieve an optimal cash holdings level, the observed wholesale companies in Balkan countries tend to constantly balance between profitability and liquidity. This paper contributes to improving the liquidity of wholesale companies in Balkan countries. It also offers wholesale companies assistance in establishing and maintaining an optimal cash holdings policy in order to reduce the potential risk of financial distress enable them to take advantage of all investment alternatives to maximize profit. All stakeholders will benefit from the developed model with significant determinants of the cash holdings policy along with the findings of this paper, especially when making decisions related to the cash holdings policy of wholesale companies and improving the overall business efficiency.