The Effect of Growth Opportunities, Financial Constraints, and Financial Distress on Cash Holding Adjustment’s Speed in Small and Medium Sized Companies
Message:
Abstract:
Purpose

Companies are looking for a targeted cash level so that they can maintain their financial flexibility. However, in some cases, companies may diverge from this level and return gradually to the optimal cash holdings level. The maintained cash and its targeted level may vary due to the adjustment costs, so the adjustments speed is affected by firm’s attributes. Accordingly, this study aims to investigate the effects of growth opportunities, financial constraints, and financial distress on the speed of adjustments in the cash holdings of listed small and medium sized companies (SMEs) on Tehran Stock Exchange.

Methods

For achieving this purpose, we selected 75 listed small and medium sized companies on Tehran Stock Exchange as a sample during 2012 to 2017, using multiple regression equations based on hybrid data.

Results

Results show that the holding cash adjustment speed of small and medium sized enterprises to reach the targeted level is affected by growth opportunities, financial constraints, and financial distress.

Conclusion

The findings show that small and medium-sized companies are rapidly adjusting their cash due to concerns about losing growth opportunities, as well as financial constraints and costs related to financial distress.

Contribution

These results could be beneficial for Iranian small and medium-sized companies with bank-based financing systems, or other small and medium-sized companies that have limited access to other financial resources. It can also improve managers' understanding of cash management and affect their responses to financial and economic shocks.

Article Type:
Research/Original Article
Language:
Persian
Published:
A Quarerly Journal Of Empirical Reasearch Of Financial Accounting, Volume:6 Issue: 4, 2020
Pages:
99 - 131
magiran.com/p2088727  
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