Determinants of Corporate Cash Holdings : An empirical analysis on the relationship between the key policy rate, firm characteristics & Swedish corporate cash holdings, 1994-2019

Abstract

This thesis investigates the determinants of Swedish corporate cash holdings. We document a positive correlation between Swedish corporate cash holdings and the key policy rate for the period 1994-2019, in contrast to existing theory. On shorter five-year periods, the relationship between interest rate and cash holdings varies and is both positive and negatively correlated. The most pronounced impact from the interest rate on cash holdings is observable in periods when the interest rates are negative. Additionally, we find that the development in certain firm characteristics drives the increase in Swedish corporate cash holdings during our sample period. The main drivers behind this increase are size, leverage, and cash flow volatility. This further indicates that the precautionary motive and the transaction motive for holding cash have become more and less prominent during the period. Conclusively, these insights provide corporate managers and government officials with information and additional insights with implications for monetary policy.