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What drives corporate cash holdings in MSMEs?: Evidence from India

Vedika Saxena (Department of Finance and Accounting, Indian Institute of Management Lucknow, Lucknow, India)
Seshadev Sahoo (Department of Finance and Accounting, Indian Institute of Management Lucknow, Lucknow, India)

Managerial Finance

ISSN: 0307-4358

Article publication date: 6 September 2022

Issue publication date: 26 January 2023

332

Abstract

Purpose

This study investigates the factors affecting corporate cash holdings for a sample of 598 Indian Micro, small and medium-sized enterprises (MSMEs) for nine years (2011–2020).

Design/methodology/approach

The system generalized method of moments (GMM) approach is used to examine the determinants of cash holdings in the Indian MSME context.

Findings

The article shows liquidity, cash flow, leverage, firm size, probability of financial distress and cash flow volatility significant in explaining cash holding decisions for MSMEs in India. No evidence of firm age and growth opportunities as determinants of cash holdings in Indian MSMEs has been found. In addition, strong evidence of cash flow volatility, cash flow and liquidity in differentiating the cash holding decisions in the service and manufacturing industry has been documented.

Originality/value

While earlier research has addressed this problem in developed nations, this is the first study that fulfills the need to investigate the variables that influence MSMEs' cash holding decisions in a developing economy like India.

Keywords

Acknowledgements

The authors thankfully acknowledge the detailed and excellent review received from the Editor, Professor Don Johnson and an anonymous referee leading to substantial improvement of the paper. We are also grateful to Dr. Vaibhav Lalwani and Mr. Yashodeep Dhonde for their valuable discussion and guidance.

Citation

Saxena, V. and Sahoo, S. (2023), "What drives corporate cash holdings in MSMEs?: Evidence from India", Managerial Finance, Vol. 49 No. 2, pp. 291-314. https://doi.org/10.1108/MF-04-2022-0184

Publisher

:

Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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