Corporate cash holdings and global crisis: Evidence from India

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Abstract

The purpose of the paper is to examine how corporate cash holdings are sensitive to the global crisis such as financial and global pandemic apart from testing the determinants of corporate cash holdings in the Indian context. The sample consisted of 38 non-financial companies listed in Nifty 50, the benchmark index of India’s National Stock Exchange (NSE) for 15 years from 2007 to 2021. Panel data analysis was conducted for the study. Fixed effect regression models were run by considering variables such as cash to total assets and change in cash to total assets, global crisis (financial crisis and global pandemic), interaction variable between cash flows and crisis, cash flows, leverage, dividend payment status, size, Tobin’s Q, net working capital and capital expenditure. The findings indicate that cash holdings are sensitive to the global crisis. Cash holdings are determined by cash flows, and leverage positively but negatively associated with dividend payment status, capital expenditure, and networking capital. Size and Tobin’s Q do not determine corporate cash holdings in the Indian context. Based on the Kaplan-Zingales (KZ) index classification, it was found that financially unconstrained companies tend to consume more cash than financially constrained companies during a global crisis due to higher flexibility in liquidity management.

Keywords: Cash Holdings, Global Crisis, KZ Index, Leverage, Capital Expenditure, Networking Capital, Tobin’s Q, Fixed Effects, Panel Data

Authors’ individual contribution: Conceptualization — M.S.; Methodology — K.R.; Software — K.R.; Validation — M.S.; Formal Analysis — M.S.; Investigation — K.R.; Resources — M.S.; Data Curation — K.R.; Writing — M.S.; Visualization — K.R.; Supervision — M.S.; Project Administration — K.R.; Funding Acquisition — M.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G30, G32

Received: 21.08.2024
Accepted: 10.12.2024
Published online: 12.12.2024

How to cite this paper: Sriram, M., & Riyazahmed, K. (2024). Corporate cash holdings and global crisis: Evidence from India. Corporate Ownership & Control, 21(4), 49–59. https://doi.org/10.22495/cocv21i4art5