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

We examine the determinants of corporate cash management policy 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 (increase) their cash holdings in response to an increase in cash flow (stock price) than are firms in countries with weak legal protection. In addition, financially constrained firms display higher sensitivities of cash to both cash flow and stock prices than do financially unconstrained firms. The results are robust to alternative specifications. Our findings highlight the importance of both country-level institutional factors and firm-level financial constraints in managers’ corporate cash management policies.