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.
Cash Holdings
References
01. https://unsplash.com/photos/8lnbXtxFGZw
02. http://www.iaeme.com/MasterAdmin/uploadfolder/IJARET_11_12_202/IJARET_11_12_202.pdf
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