Determinants of corporate cash-holding levels: An empirical examination of the restaurant industry

This study examines the determinants of cash-holding levels for restaurant firms. After examining a panel data set obtained from 125 publicly traded US restaurant firms between 1997 and 2008, the study provides evidence that restaurant firms with greater investment opportunities tend to hold more cash. At the same time, large restaurant firms, firms holding liquid assets other than cash, firms with higher capital expenditures, and firms paying dividends were shown to hold less cash. The results are generally supportive of the trade-off theory of cash holdings. In particular, both precautionary and transaction motives play important roles in explaining the determinants of cash holdings for restaurant firms.

Research highlights▶ Higher investment opportunities corresponded to higher cash holdings in US restaurant firms. ▶ Firm size, liquid asset substitutes, capital expenditures, and the paying of dividends were negatively related to cash-holding levels. ▶ The results supported the trade-off theory as a model of cash-holding determination. ▶ The precautionary and transaction motives play important roles in explaining cash-holding determinants.