The effect of cash flow sensitivity on enterprises’ cash holdings: Evidence from Vietnam

The effect of cash flow sensitivity on enterprises' cash holdings: Evidence from Vietnam


By Le Kha Tu (VNP 22)

Supervisor: Dr. Ngo Minh Hai


Cash holdings have long been a particular concern when studying the financial policies of enterprises. The global financial crisis in 2008 has impacted many economies in the world; Vietnam was one of the few emerging economies in Southeast Asia being less affected by the crisis. However, the crisis has negative impacts on the macroeconomy of Vietnam. Low GDP growth rates, booming inflation and escalating interest rates made Vietnamese enterprises’ situation more difficult. Along with the Central bank's tightening monetary policy to curb inflation, commercial banks simultaneously restricted the issuance of large loans, which were more difficult for firms to access more capital. In that context, the efficient use of cash holdings is the key to business success. To use effectively the cash flow of the firms, it is important to study the factors that affect the cash holdings of firms. Thus, the author chose the topic "The effect of cash flow sensitivity on enterprises’ cash holdings: Evidence from Vietnam" to study the effect of financial factors on firms’ cash holdings in Vietnam. The main objective of the study was to find empirical evidence on the effects of cash flow sensitivities on cash holdings in the world and to seek evidence of this in Vietnam. The study uses data from financial statements of 274 non-financial firms listed on Hanoi Stock Exchange (HNX) and Hochiminh Stock Exchange (HOSE) between 2009 and 2015. In Vietnam, cash flow sensitivities have a real impact on the cash holdings of firms, which is greater for firms with negative cash flows. The financial constraint also affects the relationship between cash flow sensitivity and cash holdings, but the agency problem does not show any significant influence on this relationship. Based on the results of the study, the paper offers some recommendations to help businesses make better cash management options. At the same time, the paper also outlines some of the remaining limitations of research and future research.

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