Cash Holdings

World Finance Reviews

Cash and cash equivalents are the most liquid form of a company’s assets, the cash is mostly used to meet the operating expenses of the firms. The point of discussion is to keep cash in hand at what level and what are the benefits and costs of keeping the optimum level of cash in hand. Recently the topic of cash holding is extremely hot in the developed countries. Cash Holding can be simply defined as the organizations keep some portion of their assets in ready cash to meet the future cash requirements of cash for different purposes, such as for day-to-day transactions (The operating expenses or working capital requirements), and the second priority is to capture any urgent type of investment opportunity, which gives a good return in short term and third priority is to meet any uncertain situation, for example during COVID19 lockdown firms were supposed to pay wages to their employees without generating goods and services, during that times banks, were also getting high-interest rates due to more demand of loans and unavailability of funds and uncertain future predictions. During these crises, the firm who kept. Sufficient funds got great advantage from cash holding, specifically in this situation. The firms who have kept a sufficient level of cash in hand were more relax and they bad nicely handled this situation and the firms who were out of cash have faced a lot of problems even they also lost their good and experienced employees. It cannot be determined or still not determined by researchers on which majority is agreed upon, the question of how much percent of cash should be kept in hand? is still under discussion, and what determines the cash holding? this is another question, on this question, some researchers are recommending some determinants of cash such as Athar K. Shar, Irfan Ali and Rehman Gul (2020) argued that the firm that is larger can keep a low level of cash, but the small firms are supposed to keep more level of cash because they are small, they cannot easily get the loans from the external agencies. Their study was based on the data of Multinational corporations (MNCs) operating in Pakistan only so this study cannot generalize all over the world. But for the developing countries, this study can be implemented, it provides the proper definition and purpose of cash. Some of the authors define that the firms who could not properly console their cash inflows and cash outflows only that firms are required to hold some cash in hand. There are some famous theories of cash holding which describes the purposes of cash holdings such as the Trade-off theory this theory simply describes that the decision keeping in hand should be on cash and benefit analysis. Another theory is the Pecking order theory. This theory describes that the decision of keeping cash in handling should be based on the level of retained earnings of the firms. The topic is open for further discussion please free to comment and suggest some better and simple definition of the cash holdings.   


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