Identifying Factors Correlated with Corporate Cash Holdings in Korea and Malaysia

This paper reports new findings on how financial ratios and risk factors of corporations are correlated with cash holdings in Korea and Malaysia. Financial risk and risk factor effects of low cash holding firms and high cash holding firms are similar in both stock exchanges. The means of all variables are higher in high cash holdings firms. The significant results in the form of higher values of financial ratios and risk factors are related to the objective of meeting liquidity needs of firms by providing flexibility to meet uncertainties in the demand for cash flows in the future. The lagged cash flow variables have a significant impact on current cash holdings. Liquidity and repayment ability in Korea and low cash holdings firms in Malaysia have similar findings. These findings add new insights into how cash holding size is associated with key firm-specific and economic factors such as exchange rates and inflation factors.