Holding Motivation and Operating Efficiency on the Cash Assets of Listed Companies in Korea
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This study analyzes the status of holding and managing the cash assets of listed companies in Korea, focusing on the appropriateness of allocating these assets. First, cash assets were defined in previous literature, and the status of listed companies’ cash assets was quantitatively analyzed as of the end of 2017. The method of allocating cash assets based on the holding motivation was also empirically analyzed and is based on that of Opler et al. (1999) and Bates et al. (2009). We used cash-only assets to cash assets, different from previous literature, as a dependent variable. The following are the hypotheses of this study. If firms hold cash assets to motivate a transaction, the entity will increase its net cash assets to cash assets. Additionally, if firms hold cash assets for a preliminary motivation, the entity would decrease cash-only assets to cash assets. We found that the entities subject to analysis increased the cash-asset-to-total-cash-asset ratio while reducing net cash assets to cash assets due to transactions and preliminary motivations. Further, entities operate and allocate cash assets appropriately in terms of preliminary motivations, but they are slightly inefficient in terms of transaction motivations. Thus, this study suggests that companies enhance expertise on internal cash asset management, financial institutions improve cash asset management services, and the public sector plays a key role in economic and political stability.
Abstract
This study analyzes the status of holding and managing the cash assets of listed companies in Korea, focusing on the appropriateness of allocating these assets. First, cash assets were defined in previous literature, and the status of listed companies’ cash assets was quantitatively analyzed as of the end of 2017. The method of allocating cash assets based on the holding motivation was also empirically analyzed and is based on that of Opler et al. (1999) and Bates et al. (2009). We used cash-only assets to cash assets, different from previous literature, as a dependent variable. The following are the hypotheses of this study. If firms hold cash assets to motivate a transaction, the entity will increase its net cash assets to cash assets. Additionally, if firms hold cash assets for a preliminary motivation, the entity would decrease cash-only assets to cash assets. We found that the entities subject to analysis increased the cash-asset-to-total-cash-asset ratio while reducing net cash assets to cash assets due to transactions and preliminary motivations. Further, entities operate and allocate cash assets appropriately in terms of preliminary motivations, but they are slightly inefficient in terms of transaction motivations. Thus, this study suggests that companies enhance expertise on internal cash asset management, financial institutions improve cash asset management services, and the public sector plays a key role in economic and political stability.
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