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臺大管理論叢
第
26
卷第
2
期
199
Cash Holding, the Value of Cash Holding, and Corporate Life
Cycle in Taiwan: An Examination of the Precautionary Motive
Hypothesis
1. Purpose/Objective
The precautionary motive hypothesis for cash holdings predicts that financially-
constrained firms as well as firms with riskier cash flows, better investment opportunities, and
limited access to external capital tend to hold more cash and exhibit greater cash value (e.g.,
Kim et al., 1998; Opler et al., 1999; Almeida et al., 2004; Faulkender and Wang, 2006;
Pinkowitz and Williamson, 2007; Acharya et al., 2007, 2013; Han and Qiu, 2007; Bates et al.,
2009; Riddick and Whited, 2009; Denis and Sibilkov, 2010; Luo, 2011; Bates et al., 2011;
Campello, Giambona, Graham, and Harvey, 2011; Song and Lee, 2012). Firms in the early
(late) life-cycle stage tend to hold more (less) cash and their cash has greater (lower) value,
hypothetically reflecting a corporate life cycle in which young (mature) firms are more (less)
financially constrained and have relatively abundant (fewer) investment opportunities and poor
(rich) access to external capital (e.g., Anthony and Ramesh, 1992; Fama and French, 2001;
Grullon, Michaely, and Swaminathan, 2002; DeAngelo and DeAngelo, 2006; DeAngelo et al.,
2006; Dittmar and Duchin, 2011). Following Dittmar and Duchin (2011), this paper uses firm
age as a proxy for corporate life cycle and serves two purposes: (1) to examine how cash
holdings vary with corporate life cycle for TWSE-listed firms and (2) to investigate the value of
cash holdings in the different stages of TWSE-listed firms’ life cycle. It is predicted that young
(mature) TWSE-listed firms hold more (less) cash and experience greater (smaller) cash value.
2. Methodology
We collected all relevant variables from the Taiwan Economic Journal (TEJ) to conduct
our analyses. The sample period runs from 1986 through 2011. To examine our first
hypothesis that young (mature) TWSE-listed firms hold more (less) cash, we employ
univariate analysis by sorting whole sample into deciles (denoted as
Young
,
D2
,
D3…
Xuan-Qi Su
, Assistant Professor, Department of Finance, National Kaohsiung First University of Science
and Technology
Alpha Lowe
, Associate Professor, Department of Finance, Feng Chia University
Yi-Cheng Shih
, Assistant Professor, Department of Finance and Cooperative Management, National Taipei
University
Summer Li
, EMBA, Department of Finance, National Kaohsiung First University of Science and
Technology