CAUSALITY RELATIONSHIP BETWEEN STOCK LIQUIDITY AND CORPORATE CASH HOLDINGS

Year 2021, , 102 - 114, 31.03.2021

Narman Kuzucu

https://doi.org/10.17130/ijmeb.788558

Abstract

Recent research documents evidence that stock liquidity and asset liquidity are associated. In the literature, some research finds the effect of asset liquidity on stock liquidity whereas some finds the effect of stock liquidity on corporate liquidity. This study examines the causality relationship between a firm’s stock liquidity and its cash holdings. We use Granger causality for a dataset of listed non-financial companies. We find bidirectional causality between the two variables. The evidence shows that the causality from stock liquidity to cash holdings is weaker than the otherwise. Furthermore, our findings imply that investors are more reliant on firm’s cash holdings for valuation of smaller firms.

Keywords

Cash holdings, causality, stock liquidity

HİSSE SENEDİ LİKİDİTESİ İLE İŞLETMELERİN NAKİT VARLIKLARI ARASINDAKİ NEDENSELLİK İLİŞKİSİ

Abstract

Son araştırmalar hisse senedi likiditesi ile işletme likiditesinin ilişkili olduğunu kanıtlamaktadır. Literatürde, bazı araştırmalar işletme likiditesinin hisse senedi likiditesine etkisini incelerken, bazıları ise hisse senedi likiditesinin kurumsal nakit varlıklar üzerindeki etkisini incelemektedir. Bu çalışmada, hisse senedi likiditesi ile işletmelerin nakit varlıkları arasındaki nedensellik ilişkisi incelenmiştir. Granger nedensellik testi kullanılarak, finans sektörü dışındaki halka açık şirketlerin verileri analiz edilmiştir. Değişkenler arasında çift yönlü nedensellik ilişkisi bulunmuştur. Kanıtlar, hisse senedi likiditesinden nakit varlıklara doğru olan nedenselliğin, aksi yönlü nedensellikten daha zayıf olduğunu göstermektedir. Ayrıca bulgularımız, yatırımcıların daha küçük işletmelerin değerlemesinde, şirketlerin ellerindeki nakit varlıklara daha fazla güven duyduklarını göstermektedir.

Keywords

Hisse senedi likiditesi, nakit varlıklar, nedensellik

References

• Acharya, V. V., & Pedersen, L. H. (2005). Asset pricing with liquidity risk. Journal of Financial Economics, 77, 375-410.
• Amihud, Y., & Mendelson, H. (1986). Asset pricing and the bid-ask spread. Journal of Financial Economics, 17, 223-249.
• Amihud, Y. (2002). Illiquidity and stock returns: Cross-section and time-series effects. Journal of Financial Markets, 5, 31-56.
• Anderson, R. W., & Hamadi, M. (2016). Cash holding and control-oriented finance, Journal of Corporate Finance, 2016, 41, 410-425.
• Banerjee, S., Gatchev, V. A., & Spindt, P. A. (2007). Stock market liquidity and firm dividend policy. Journal of Financial and Quantitative Analysis, 42(2), 369-397.
• Bates, T. W., Kahle, K., & Stulz, R. (2009). Why do U.S. firms hold so much more cash than they used to? Journal of Finance, 64, 1985-2021.
• Bodie, Z., Kane A., & Marcus, A. J. (2014). Investments, 10th Global Ed. Berkshire: McGraw-Hill.
• Breuer, W., Rieger, M. O., & Soypak, K. C. (2017). Corporate cash holdings and ambiguity aversion. Review of Finance, 21(5), 1933-1974.
• Brogaard, J., Li, D., & Xia, Y. (2017). Stock liquidity and default risk. Journal of Financial Economics, 124(3), 486-502.
• Brown, J., & Petersen, B. (2011). Cash holdings and R&D smoothing. Journal of Corporate Finance, 17, 694-709.
• Charoenwong, C., Chong, B. S., & Yang, Y. C. (2014). Asset liquidity and stock liquidity: International evidence. Journal of Business Finance & Accounting, 41(3&4), 435-468.
• Chen, Z., Gao, K., & Huang, Wi, (2020). Stock liquidity and excess leverage. Finance Research Letters, 32, 1-7.
• Cheung, A. (2016). Corporate social responsibility and corporate cash holdings, Journal of Corporate Finance, 37, 412-430.
• Deb, P., David, P., & O’Brien J. (2017). When is cash good or bad for firm performance? Strategic Management Journal, 38, 436-454.
• Dittmar, A., & Mahrt-Smith, J. (2007). Corporate governance and the value of cash holdings. Journal of Financial Economics, 83, 599-634.
• Dumitrescu, E.-I., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450-1460.
• Fang, V. W., Noe, T. H., & Tice, S. (2009). Stock market liquidity and firm value. Journal of Financial Economics, 94, 150-169.
• Gao, H., Harford, J., & Li, K. (2013). Determinants of corporate cash policy: Insights from private firms. Journal of Financial Economics, 109, 623-639.
• Gopalan, R., Kadan, O., & Pevzner, M. (2012). Asset liquidity and stock liquidity. Journal of Financial and Quantitative Analysis, 47(2), 333-364.
• Hu, Y., Huang, W., & Chen, Z. (2019). Stock liquidity, agency cost, and dividend payouts. Applied Economics Letters, 27(4), 335-339.
• Hu, Y., Li, Y., & Zeng, J. (2019). Stock liquidity and corporate cash holdings. Finance Research Letters, 28, 416-422.
• Huang, D., & Wang F. (2009). Cash, investments and asset returns. Journal of Banking & Finance, 33(12), 2301-2311.
• Jiang, F., Ma, Y., & Shi, B. (2017). Stock liquidity and dividend payouts. Journal of Corporate Finance, 42, 295-314.
• Kim, C., & Bettis, R. (2014). Cash is surprisingly valuable as a strategic asset. Strategic Management Journal, 35(13), 2053-2063.
• Lopez, L., & Weber, S. (2017). Testing for Granger causality in panel data. University of Neuchatel Institute of Economic Research IRENE Working paper 17-03. Retrieved on October 15, 2019 from https://www.unine.ch/files/live/sites/irene/files/shared/documents/Publications/Working%20papers/2017/WP17-03_V2.pdf.
• Mishkin, F. S. (2016). The Economics of Money, Banking, and Financial Markets, 11th Global Ed. Boston: Pearson.
• Nason, R. S., & Patel, P. C. (2016). Is cash king? Market performance and cash during a recession. Journal of Business Research, 69(10), 4242-4248.
• Nyborg, K. G., & Wang, Z. (2019). Corporate cash holdings: Stock liquidity and the repurchase motive. Swiss Finance Institute Research Paper No.19-30. Retrieved on October 21, 2019 from http://dx.doi.org/10.2139/ssrn.3398154.
• Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52, 3-46.
• Riddick, L. A., & Whited, T. M. (2009). The corporate propensity to save. Journal of Finance, 64, 1729-1766.
• Tayem, G., Tayeh, M., & Bino, A. (2016). Asset liquidity, stock liquidity, and ownership concentration: Evidence from the ASE. Corporate Ownership & Control, 14(1), 48-58.