Market Share and Cash Policy: Evidence from Western European Companies

Abstract

This study analyses the impact of market share on corporate cash policy in a static as well as a dynamic framework. Using a panel data set of large firms in 14 European countries, we show that firms with high market share tend to have lower cash holdings. This relationship between market share and cash policy is most apparent when predation risk, measured using either the similarity of a firm’s technology with its industry rivals or market concentration, is high. These findings are robust for different estimation methods, different variables definitions, and for controlling for possible endogeneity between cash holdings and market share.