Determinants of Cash Holdings and the Effect of the 2008 Financial Crisis: An Empirical Investigation of Norwegian Listed Firms

Abstract

In this paper we examine which determinants affect the cash holdings for Norwegian firms listed on Oslo Stock Exchange between 2001 and 2018, and if the effect of the determinants changed during the 2008 financial crisis. To analyze the effect of the 2008 financial crisis, we divide our sample into four sub-periods: Base period (2001-2003); Pre-crisis period (2004-2006); Crisis period (2007-2009); Post-crisis period (2010-2018). The results show that the determinants leverage, size, and capital expenditure have a significant negative effect on cash holdings in all periods, indicating that the 2008 financial crisis did not affect these determinants. However, we find that there are four determinants that were affected by the 2008 financial crisis. Operating cash flow turned insignificant during the crisis, from a significant positive effect before the crisis and to a significant negative effect after the crisis. NWC had a significant negative effect on cash holdings in the Base- and Post-crisis period, while insignificant in the Pre-crisis- and Crisis period. ROA is only significant in the Crisis period with a positive effect on cash holdings, while Tobin’s Q had a significant positive effect on cash holdings for all periods except the Pre-crisis period. Additionally, dividend yield has no significant effect on cash holdings for Norwegian listed firms.