Corporate Cash Holdings, National Culture, and Multinationality

Abstract

We examine the relations between national cultures, the multinationality of the firm and its holdings of cash. We develop several hypotheses from well known corporate finance theories and theories of the multinational firm, positing that cultural factors as well as the degree of multinationality of firms influence their decisions to hold cash. In particular, firms in countries with high uncertainty avoidance, as a national culture, hold more cash as a way to hedge against undesired states of nature. Furthermore, as a reflection of their longer business cycles, multinational firms typically hold more cash. At the same time, however, the multinationality of the firm moderates the effects of culture on the firm’s decision to hold liquid assets. Based on a large panel of firms in forty countries, we present evidence consistent with these hypotheses. While firms in countries with high levels of uncertainty avoidance tend to hold more cash, the degree of multinationality of the firm is positively correlated with holdings of cash. On the other hand, the effect of national culture on firm’s cash holdings is lower for multinationals.