Do Factors Affecting Firms' Cash Holdings Differ Across Sectors?: Evidence from Turkiye

Abstract

We examine whether the determinants of firms' cash holdings differ across different sectors, such as basic materials, consumer cyclicals, consumer non-cyclicals, energy, healthcare, industrials, real estate, technology, and utilities. Firm-level factors include market-to-book ratio, size, cash flow, net working capital, capital expenditures, leverage, cash flow volatility, R&D expenses, and dividend payment. External factors include periods of economic uncertainty, that is, times of financial crisis. The study's dataset includes 385 firms listed on Borsa Istanbul, Turkiye and 4,375 firm-year observations from 2001 to 2022. Data analysis was conducted using the Driscoll-Kraay robust standard errors panel data estimation method, which ensures unbiased and consistent results despite heteroscedasticity, autocorrelation, and cross-sectional dependence. The findings indicate that variables such as cash flow, net working capital, capital expenditures, leverage, R&D expenses, and dividends are key determinants shaping cash holding behavior in firms within Turkiye as a developing country, regardless of the sector in which these firms operate. Firms increased their cash reserves during the economic uncertainty. Additionally, the market-to-book value ratio and firm size influence cash holding levels differently depending on the sector. In conclusion, although some factors have a consistent impact across various sectors, sector-level analyses reveal unique characteristics and dynamics within each sector that shape the factors influencing firms' cash management strategies.

Keywords

• Cash holdings
• Cash reserves
• Cash management
• Sectoral differences
• Panel data analysis

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