A study of the development of corporate cash holdings among U.S. and Danish firms before and after the financial crisis.

Hallstein Kvam Oma

Student thesis: Master thesis


The presence of large amounts of cash on U.S.-firms’ balance sheets in the recent years has drawn attention to the topic corporate cash holdings. Coming out of the biggest financial crisis since the great depression, this study provide empirical evidence for how the crisis has changed the dynamics behind the firm’s cash holding level. This study also includes Danish firms, where cash levels have fallen in the post-crisis period, contrary to the development among the U.Sfirms, which is also in interest for this study. By reviewing existing literature and conducting a meta-analysis, 12 firm-specific variables are constructed to investigate the dynamics, and thereby to explain the contrary development in the two home markets. 9733 U.S firms and 107 Danish firms are included in the sample, whereas financial and utility firms are excluded. The variables are first tested in the pre-crisis period (Q1 2004 – Q2 2007) and then in the post-crisis period (Q3 2009 – Q4 2013), where significant country-specific differences are found. The results indicate strong support for precautionary motives for holding cash among U.S. in the post-crisis period based on significant findings on cash flow, cash flow volatility, size, repurchase of own stocks and their impact on cash holdings. However, these large holdings due to precautionary motives can indicate presence of agency problems among U.S. firms, possibly due to managerial discretion or managers catering towards creditors rather than its shareholders. Furthermore, panel data regressions find strong support for pecking order theory to predict levels among U.S. firms, meanwhile trade-off theory appears better to predict the cash levels among Danish firms. This indicates U.S.-firms are more dependent on internally generally funds, which is supported by the relatively weaker creditor protection rights in the U.S. compared to Denmark. Given the complex and wide range of factors that influences holding levels, these findings should, however, be interpreted as some of many contributing causes to the contrary holding development in the two countries in the after crisis period.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2016
Number of pages83