Corporate Cash Holdings and Financial Crisis: Evidence from Jordan

  •  Asma’a Al-Amarneh    


The focal point of this study is to investigate whether the Jordanian companies hold more cash after the financial crisis compared to before the financial crisis and which theories can explain these cash holdings. This work addresses the following questions: 1) what determine the corporate cash holdings in Jordan in normal time and during crisis. 2) How do the financial crises affect the policy of cash holding in the Jordanian firms?

This study investigates the effect of capital expenditure, profitability, cash flows, investment (growth) opportunities, leverage, and ability to access capital markets, dividend’s payment and liquid assets substitutes. The study use data from 47 industrial companies listed at Amman Stock Exchange (ASE) during the period 2001 to 2011, with total 517 firm-year observations.

The study time period was divided into four sub periods to assess the changes in cash holdings during each period. Panel regression was applied to examine the study model; also ANOVA test was used to test the differences in means for each sub period. Our results show that; Jordanian companies tend to increase their cash holdings because of financial crisis by increasing debt, decreasing investment activity and reducing payouts to shareholders. Moreover, the study show a different patterns in cash holdings during the pre crisis period and the post-crisis period, also there is a different patterns in cash holdings during the base period and the pre-crisis period. In addition, the main theories that explain the changes in cash holdings for the Jordanian companies were trade off theory and the pecking order theory. Generally speaking, our results support the trade off theory. The precautionary motive founded to be the most important motives for the Jordanian firms to hold cash. Generally, Cash flow, liquid assets substitutes, degree of financial leverage and dividend payment policy are the most important determinants of corporate cash holdings in Jordan.

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