The Determinants of Corporate Cash Management Policies: Evidence from around the World

We examine the determinants of corporate cash management policies across a broad sample of international firms. We find that firms in countries with strong legal protection of minority investors are more likely to decrease their cash holdings in response to an increase in cash flow than are firms in countries with weak legal protection. In addition, this relationship is most pronounced for firms that are financially constrained and those with high hedging needs. The results are robust to alternative specifications. In general, our findings reinforce the importance of country-level institutional factors in mitigating the effects of firm-level financial constraints and hedging needs on corporate cash management policies.