Investigating the Asymmetric Sensitivity of Cash Holdings to Cash Flow Shock under the Terms of the Financial Constraints

The basic aim of the present study is to examine the relationship between cash holdings and cash flows and explaining this relationship in terms of negative cash flow, financial constraints, and institutional shareholder monitoring. In this research, the data of 140 companies listed in Tehran Stock Exchange, during the years 2007 to 2011, were statistically analyzed. Results showed that the relationship between the changes in cash holdings and cash flows is direct and significant, but in firms with negative cash flow, this relationship is not statistically significant. Based on these findings, the sensitivity of cash flow holdings to cash flow has not been asymmetric. Also, the findings indicate that, in the firms with financial constraints, managers have consumed the cash holdings of the company more. Moreover, the results indicate that institutional ownership is inversely related to cash holdings. These findings, in line with the theory of effective supervision of institutional shareholders, indicate that these groups of shareholder have probably commented on the financial decisions of corporate managers of sample companies.

Cash Holdings, Net Cash Flows, Financial Constraints, Institutional Ownership