DOES VOLATILITY OF TRADE RECEIVABLES AFFECT CORPORATE CASH HOLDINGS? EMPIRICAL EVIDENCE FROM TURKEY

Abstract

Purpose - This study aims to analyze the direct impact of trade receivables volatility on corporate cash holdings. Unlike previous studies, the present paper focuses on variability of a firm’s investment in trade credit which proxies instability of a firm’s trade receivables policy. Methodology - The sample is composed of 330 Turkish industrials listed on Borsa Istanbul from 2000 to 2017. The model is estimated via system GMM (Generalized Method of Moments) to account for the partial adjustment process towards the target cash level and also to address the potential endogeneity issue related with volatility of trade receivables. Findings- Estimations establish a significant negative effect of trade receivables volatility on cash holdings. The results are robust to alternative definitions of cash holdings and trade receivables volatility. Conclusion - The evidence presented in this study suggests that instability of trade receivables policy weakens liquidity position of firms.

Keywords

• Trade credit,corporate cash,Borsa Istanbul

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