WHY SO MUCH CASH IN EUROPEAN FIRMS? AN EMPIRICAL STUDY 1986-2015

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Based on this empirical research the average cash-to assets ratio for European industrial and commercial firms has increased from 10.2% in 1986 to 16.2% in 2015. Our panel is composed of 40140 observations for 2878 unique firms incorporated in twelve Eurozone core countries. The main objective of this paper is to study whether the change in cash holdings in the last 30 years is different in Europe (compared to the US) and whether the reasons for holding cash are similar or different.
It seems that cash ratios increase because firms’ cash flows become riskier over the period. Among the different theories, it appears that the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios of European companies over the period 1986-2015. According to this precautionary motive we found that loss making firms tend to accumulate more cash. We find also that non dividend paying firms had higher cash ratios than dividend payers over the period 1997-2015. To our knowledge, this study is the most comprehensive empirical research on the cash holdings of European firms since Feirrera and Vilela (2004).

Author(s):

Michel Albouy    
Grenoble Ecole de Management
France

Christophe Bonnet    
Grenoble Ecole de Management
France

Philippe Dupuy    
Grenoble Ecole de Management
France

Safwan Mchawrab    
Grenoble Ecole de Management
France