Skip to main content

LUP Student Papers

LUND UNIVERSITY LIBRARIES

Cash Holdings, Secured Debt and Collateral

Wihlborg, Anton LU and Dahl, Philip LU (2023) BUSN79 20231
Department of Business Administration
Abstract
The purpose of this study is to empirically investigate the relationship between
unencumbered tangibility and cash holdings, and to evaluate if corporations consider them to be substitutable variables of corporate liquidity. The study relies on a panel data set and then employs a firm fixed effect
regression model to estimate the strength and direction of the relationship of interest. It then proceeds by dividing up the sample into financially constrained and unconstrained firms to compare the effect this has on the relationship in question. Finally, the sample is divided based on the external credit market conditions of each year.

The theoretical background of this study is based on the established literature on the motives for... (More)
The purpose of this study is to empirically investigate the relationship between
unencumbered tangibility and cash holdings, and to evaluate if corporations consider them to be substitutable variables of corporate liquidity. The study relies on a panel data set and then employs a firm fixed effect
regression model to estimate the strength and direction of the relationship of interest. It then proceeds by dividing up the sample into financially constrained and unconstrained firms to compare the effect this has on the relationship in question. Finally, the sample is divided based on the external credit market conditions of each year.

The theoretical background of this study is based on the established literature on the motives for corporate cash holdings and is complemented with a treatment of the characteristics of secured debt and collateral. The sample consists of annual data for firms listed on major US exchanges between 2013-2022.

The study finds a statistically and economically significant inverse relationship
between unencumbered tangibility and corporate cash holdings. Additionally, it finds that the relationship is amplified by the presence of financing constraints. Taken together, the findings confirm that unencumbered tangibility is a determinant of cash holdings. They also suggest that firms may compensate for the loss of financial and operational flexibility associated with secured debt by holding more cash, which is in accordance with the precautionary motive for cash holding. (Less)
Please use this url to cite or link to this publication:
author
Wihlborg, Anton LU and Dahl, Philip LU
supervisor
organization
alternative title
Unencumbered tangibility as financial slack
course
BUSN79 20231
year
type
H1 - Master's Degree (One Year)
subject
keywords
Corporate Cash Holdings, Secured Debt, Unencumbered Tangibility, Precautionary Motive, Financial Constraints
language
English
id
9139065
date added to LUP
2023-09-25 09:21:15
date last changed
2023-09-25 09:21:15
@misc{9139065,
  abstract     = {{The purpose of this study is to empirically investigate the relationship between
unencumbered tangibility and cash holdings, and to evaluate if corporations consider them to be substitutable variables of corporate liquidity. The study relies on a panel data set and then employs a firm fixed effect
regression model to estimate the strength and direction of the relationship of interest. It then proceeds by dividing up the sample into financially constrained and unconstrained firms to compare the effect this has on the relationship in question. Finally, the sample is divided based on the external credit market conditions of each year.

The theoretical background of this study is based on the established literature on the motives for corporate cash holdings and is complemented with a treatment of the characteristics of secured debt and collateral. The sample consists of annual data for firms listed on major US exchanges between 2013-2022.

The study finds a statistically and economically significant inverse relationship
between unencumbered tangibility and corporate cash holdings. Additionally, it finds that the relationship is amplified by the presence of financing constraints. Taken together, the findings confirm that unencumbered tangibility is a determinant of cash holdings. They also suggest that firms may compensate for the loss of financial and operational flexibility associated with secured debt by holding more cash, which is in accordance with the precautionary motive for cash holding.}},
  author       = {{Wihlborg, Anton and Dahl, Philip}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Cash Holdings, Secured Debt and Collateral}},
  year         = {{2023}},
}