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Precautionary motives for private firms’ cash holdings

Author

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  • Potì, Valerio
  • Pattitoni, Pierpaolo
  • Petracci, Barbara
Abstract
In this paper, we focus on the precautionary motive for holding cash in private firms. We check novel implications of such motive that arise under conditions that are typical of private firms. Because of the incomplete separation of the finances of these firms from the finances of the owner, we also complement the traditional precautionary motive with a novel variant that considers stakeholders’ risk attitudes. We find empirical evidence consistent with both versions of the precautionary motive though some of the implications of the traditional precautionary motive, in the form of the hedging motive, are unsupported by the data.

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  • Potì, Valerio & Pattitoni, Pierpaolo & Petracci, Barbara, 2020. "Precautionary motives for private firms’ cash holdings," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 150-166.
    • Handle: RePEc:eee:reveco:v:68:y:2020:i:c:p:150-166
    DOI: 10.1016/j.iref.2020.03.003
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    More about this item

    Keywords

    Cash holdings; Private firms; Precautionary motive; Financing policies;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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