On the Determinants of SME Cash Holdings: Evidence from Spain

Authors

  • Pedro J. García-Teruel,

    1. The authors are from the Department of Management and Finance, University of Murcia, Spain. Financial support for this study was provided by the Foundation CajaMurcia which is gratefully acknowledged. The authors also thank an anonymous referee for his/her valuable comments and suggestions.
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  • Pedro Martínez-Solano

    Corresponding author
    1. The authors are from the Department of Management and Finance, University of Murcia, Spain. Financial support for this study was provided by the Foundation CajaMurcia which is gratefully acknowledged. The authors also thank an anonymous referee for his/her valuable comments and suggestions.
      * Address for correspondence: Pedro J. García-Teruel, Department of Management and Finance, Faculty of Economics and Business, University of Murcia, Murcia (30100), Spain. e-mail: pjteruel@um.es
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* Address for correspondence: Pedro J. García-Teruel, Department of Management and Finance, Faculty of Economics and Business, University of Murcia, Murcia (30100), Spain. e-mail: pjteruel@um.es

Abstract

Abstract:  This work analyses the factors that might explain the level of cash holdings in a sample of 860 small and medium-sized firms from Spain during the period 1996–2001. The empirical results show that firms have a target cash level to which they attempt to converge. The level of this target is higher for firms with more growth opportunities and larger cash flows. In contrast, the target level for cash holdings falls when the use of bank debt and the presence of substitutes for cash increase. Moreover, when the interest rates in the economy increase firms reduce their cash holding.

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