Why do Vietnamese firms hold cash?

Why do Vietnamese firms hold cash?

This research aims at exploring the current state and the reasons for holding cash of Vietnamese firms. Using a dataset of 199 companies listed on the Ho Chi Minh City Stock Exchange in the period from 2011 to 2018, statistical analyses indicate that the median level of cash holding by net assets of...

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Những tác giả chính: Nguyễn, Thanh Hồng Ân, Hoàng, Mai Phương
Định dạng: Journal article
Ngôn ngữ:English
Được phát hành: 2022
Những chủ đề:
Cash holdings
Free cash flow theory
Pecking order theory
Trade-off theory
Vietnamese listed companies
Truy cập trực tuyến:http://scholar.dlu.edu.vn/handle/123456789/904
https://doi.org/10.37569/DalatUniversity.10.4.606(2020)
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Thư viện lưu trữ: Thư viện Trường Đại học Đà Lạt
id oai:scholar.dlu.edu.vn:123456789-904
record_format dspace
institution Thư viện Trường Đại học Đà Lạt
collection Thư viện số
language English
topic Cash holdings
Free cash flow theory
Pecking order theory
Trade-off theory
Vietnamese listed companies
spellingShingle Cash holdings
Free cash flow theory
Pecking order theory
Trade-off theory
Vietnamese listed companies
Nguyễn, Thanh Hồng Ân
Hoàng, Mai Phương
Why do Vietnamese firms hold cash?
description This research aims at exploring the current state and the reasons for holding cash of Vietnamese firms. Using a dataset of 199 companies listed on the Ho Chi Minh City Stock Exchange in the period from 2011 to 2018, statistical analyses indicate that the median level of cash holding by net assets of Vietnamese firms is about 5.9%, which is lower than firms in many countries in the region. High levels of cash holding only appear among small firms. In addition, the cash holding ratios of firms in all four size quantiles have shrunk since 2016, especially for firms in the smallest size quantile. Regression results show that Vietnamese firms tend to hoard cash when business conditions improve, when they have low growth opportunities, or when business risks increase. On the other hand, Vietnamese firms tend to reduce holding cash when other internal sources of cash substitutes are in abundance or when external fund accessibility improves. These characteristics support the trade-off theory of cash holding, meaning that Vietnamese firms hold cash mainly for transactional and precautionary purposes. Additional analyses show that the rate of adjustment of cash holding toward the target level is about 30% a year. Taken together, the results confirm the hypothesis that Vietnamese firms hold cash for transactional and precautionary purposes, and they constantly reconsider the benefits and costs of adjusting cash holding ratios to the target levels. The research results have two main implications. Firstly, the fact that firms with low growth opportunities have higher cash holding ratios indicates that these firms’ board of directors may have been inefficient in monitoring and disciplining the behavior of firms’ executives toward shareholder interests. Secondly, the fact that Vietnamese firms have low and dwindling cash holdings in recent years and use their cash stock mainly for transactional and precautionary purposes may be a sign of internal resource deficiency. Given that internal resources are vital to investments in research and development, which in turn contribute to firms’ future growth and competitiveness, the current low level cash holding is a bad sign for the future growth as well as the long-term competitiveness of Vietnamese firms.
format Journal article
author Nguyễn, Thanh Hồng Ân
Hoàng, Mai Phương
author_facet Nguyễn, Thanh Hồng Ân
Hoàng, Mai Phương
author_sort Nguyễn, Thanh Hồng Ân
title Why do Vietnamese firms hold cash?
title_short Why do Vietnamese firms hold cash?
title_full Why do Vietnamese firms hold cash?
title_fullStr Why do Vietnamese firms hold cash?
title_full_unstemmed Why do Vietnamese firms hold cash?
title_sort why do vietnamese firms hold cash?
publishDate 2022
url http://scholar.dlu.edu.vn/handle/123456789/904
https://doi.org/10.37569/DalatUniversity.10.4.606(2020)
_version_ 1768305888463945728
spelling oai:scholar.dlu.edu.vn:123456789-9042022-09-14T08:51:44Z Why do Vietnamese firms hold cash? Nguyễn, Thanh Hồng Ân Hoàng, Mai Phương Cash holdings Free cash flow theory Pecking order theory Trade-off theory Vietnamese listed companies This research aims at exploring the current state and the reasons for holding cash of Vietnamese firms. Using a dataset of 199 companies listed on the Ho Chi Minh City Stock Exchange in the period from 2011 to 2018, statistical analyses indicate that the median level of cash holding by net assets of Vietnamese firms is about 5.9%, which is lower than firms in many countries in the region. High levels of cash holding only appear among small firms. In addition, the cash holding ratios of firms in all four size quantiles have shrunk since 2016, especially for firms in the smallest size quantile. Regression results show that Vietnamese firms tend to hoard cash when business conditions improve, when they have low growth opportunities, or when business risks increase. On the other hand, Vietnamese firms tend to reduce holding cash when other internal sources of cash substitutes are in abundance or when external fund accessibility improves. These characteristics support the trade-off theory of cash holding, meaning that Vietnamese firms hold cash mainly for transactional and precautionary purposes. Additional analyses show that the rate of adjustment of cash holding toward the target level is about 30% a year. Taken together, the results confirm the hypothesis that Vietnamese firms hold cash for transactional and precautionary purposes, and they constantly reconsider the benefits and costs of adjusting cash holding ratios to the target levels. The research results have two main implications. Firstly, the fact that firms with low growth opportunities have higher cash holding ratios indicates that these firms’ board of directors may have been inefficient in monitoring and disciplining the behavior of firms’ executives toward shareholder interests. Secondly, the fact that Vietnamese firms have low and dwindling cash holdings in recent years and use their cash stock mainly for transactional and precautionary purposes may be a sign of internal resource deficiency. 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