The Impact of Financial Constraints on Cash Holdings of Non-Financial Enterprises

Abstract

The article examines the impact of financial constraints on the need to hold cash of 383 businesses listed on the HNX and HSX from 2010 to 2022. Research approaches financial constraints according to the KZ index of Kaplan and Zingales (1997) and the WW index of Whited and Wu (2006). The study uses the FGLS regression method with the results that: Businesses facing financial constraints hold less cash. Besides, the article also shows that: Financial characteristics and corporate governance characteristics both have a significant impact on cash holdings. Specifically, businesses with large scale and high financial leverage will have lower levels of cash holdings but businesses with high profits, surplus cash flow, high asset turnover, large Board size and highly independent Board of Directors will have higher levels of cash holdings. From the results of that research, the article provides policy implications for managers and investors outside the enterprise regarding corporate cash holdings.