This paper has investigated the empirical determinants of corporate cash holdings
for a sample of UK firms. There are several important features of our analysis,
which, we believe, extend the literature on the empirical determinants of cash holdings
of firms. First, we incorporate the ownership and board structure of firms into
the analysis of cash holding decisions. Second, distinct from previous empirical studies,
we effectively control for the endogeneity problem that is likely to arise in the
empirical investigation of cash holdings. Last but not least, our analysis incorporates
the dynamic nature of the response of firms to changes in their target cash levels,
where the target adjustment coefficient is estimated by controlling for firm heterogeneity
as well as endogeneity and measurement errors.