Corporate cash holdings : evidence from Thailand

The objective of this paper is to investigate the holdings of cash for a sample of Thai firms over the period 1993-2007. First, we investigate the determinants of corporate cash holdings. The results indicate that firm’s growth opportunity, debt maturity structure, dividend’s payment, liquid assets substitutes, and leverage ratio play a significant role in determining cash holdings. Moreover, we try to provide the empirical evidence of the long-run target cash ratio of Thai firms by examine the speed of adjustment towards the target cash ratio. Our findings reveal that Thai firms do not adjust their cash holdings to the target cash ratio but their cash holdings trend to diverge from the target cash level. This result does not support the view that firms trade-off between costs of adjustment towards the target cash ratio and costs of being off the target. The last objective in this study is to investigate the determinants of speed adjustment towards the target cash ratio. Although we find that cash holdings of firms trend to diverge from the target cash level, the speed of adjustment between firms that their characteristics in top and bottom quartile (firm size, debt capacity, and fixed assets) or firms that their leverage or cash under target and over target level are different