Is cash still king? – A study of the firm characteristics that determine the cash holding levels of Swedish corporations and the impact of the 2008 financial crisis on corporate cash policies

Abstract: The purpose of the thesis is to identify the key determinants of corporate liquidity in Swedish firms and whether these have changed in the wake of the 2008 financial crisis. For these means, data obtained from companies listed on the Swedish NASDAQ OMX Stockholm stock exchange are used to estimate a number of dynamic panel regression models in E-Views. The ambition is that the insights gained will help managers to make wise decisions about their cash policies and also to further the understanding about how a financial crisis can influence the need for corporate liquidity. A number of applicable theories and previous studies are used as the foundation for identifying suitable drivers of corporate liquidity. Many of the major studies considered are based on US companies, but research for Europe as well as Asia and the rest of the world is also taken into consideration. A set of key factors influencing the cash holding levels are identified lending support to the pecking order hypothesis, trade-off model, agency theories, and the precautionary motive. The crisis of 2008 – 2009 has not had any major effect on which factors determine the cash holdings policies of Swedish corporations. Also, support is found for a target cash ratio adjustment process in Swedish firms.