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ABSTRACT. This study examines the determinants of corporate cash holdings using the data of non-financial firms listed on the Karachi Stock Exchange. Using various firm-specific determinants of cash holdings, we extend our analysis to the firm specific, industry specific and group-affiliation effects in determining the cross-sectional dif- ferences in corporate cash holdings. We affirm most of the past theories and contradict only a few. Consistent with the past studies we find that Pakistani firms’ cash holdings are highly influenced by a precautionary need. Our results indicate that the cash holdings of Pakistani firms increases with increase in cash flow/ net asset, market to book ratio and volatility of cash flows. We find that net working capital, leverage and capital expenditures are negatively related with corporate cash holdings of the firms. pp. 344–358
JEL: G31, O16, R53, D51

Keywords: cash holding, precautionary needs, transactional motives, working capital

SANJEEVAIAH PUTTASWAMAIAH
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Bangalore University

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