problem by instrumenting bank debt variable using its lagged values.
One interesting result stems from the estimated coefficient of size variable (SIZE),
which is positive but insignificant. This finding does not lend support to the view that
larger firms hold lower levels of cash because they are less likely to experience financial
distress, more diversified and have better excess to external financing. However,
the positive coefficient suggests that there may be other factors affecting the way in
which size of firms exerts influence on their cash-holding decisions. For example, it
may be that larger firms are more successful in generating cash flows (and profit) so
that they can accumulate more cash and marketable securities. Also, to the extent
that large firms have greater growth opportunities and smaller liquid assets besides
cash and marketable securities, they may choose to hold higher levels of cash.
However, none of these effects seem to prevail.
problem by instrumenting bank debt variable using its lagged values.One interesting result stems from the estimated coefficient of size variable (SIZE),which is positive but insignificant. This finding does not lend support to the view thatlarger firms hold lower levels of cash because they are less likely to experience financialdistress, more diversified and have better excess to external financing. However,the positive coefficient suggests that there may be other factors affecting the way inwhich size of firms exerts influence on their cash-holding decisions. For example, itmay be that larger firms are more successful in generating cash flows (and profit) sothat they can accumulate more cash and marketable securities. Also, to the extentthat large firms have greater growth opportunities and smaller liquid assets besidescash and marketable securities, they may choose to hold higher levels of cash.However, none of these effects seem to prevail.
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