The non-linear impact of financial leverage on cash holdings: Empirical evidence from Vietnam
This article examines the non-linear relationship between financial leverage and cash holdings in the emerging market context—Vietnam. We use the dynamic model with the system generalized method of moments (SGMM) estimator and the comprehensive data set of stocks listed on the Vietnamese stock marke...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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Taylor & Francis Group
2022-12-01
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| Series: | Cogent Business & Management |
| Subjects: | |
| Online Access: | https://www.tandfonline.com/doi/10.1080/23311975.2022.2114304 |
| _version_ | 1798001251376431104 |
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| author | Hung Phan Tran Minh Kim Nguyen Thi Loan Pham Thi Be |
| author_facet | Hung Phan Tran Minh Kim Nguyen Thi Loan Pham Thi Be |
| author_sort | Hung Phan Tran Minh |
| collection | DOAJ |
| description | This article examines the non-linear relationship between financial leverage and cash holdings in the emerging market context—Vietnam. We use the dynamic model with the system generalized method of moments (SGMM) estimator and the comprehensive data set of stocks listed on the Vietnamese stock market from 2007 to 2019. The database is collected from accounting data related to 513 Vietnamese firms’ characteristics and provided by Fiin Pro. We indicate that financial leverage exerts a negative impact on cash holdings at low levels, but the relationship becomes positive at high levels of financial leverage. We further find that short-term and long-term debt are non-linearly related to cash holdings. Our findings offer implications for managers to operate their firms at different levels of financial leverage. Firms at low levels of financial leverage should tend to hold less cash and issue debt since the addition of debt to adapt investment and operation could maximize corporate value. In contrast, firms at high levels of financial leverage could hoard cash to mitigate the likelihood of financial distress, bankruptcy and to reserve borrowing capacity because such firms are more likely to experience financial distress and go bankrupt. Policymakers could draw up policies to reduce the likelihood of experiencing financial distress and bankruptcy, such as the decrease of the debt financing and the increase of the likelihood of equity financing. |
| first_indexed | 2024-04-11T11:33:15Z |
| format | Article |
| id | doaj.art-18a9897ba62d4e96827ee2549ebd3668 |
| institution | Directory Open Access Journal |
| issn | 2331-1975 |
| language | English |
| last_indexed | 2024-04-11T11:33:15Z |
| publishDate | 2022-12-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Cogent Business & Management |
| spelling | doaj.art-18a9897ba62d4e96827ee2549ebd36682022-12-22T04:26:03ZengTaylor & Francis GroupCogent Business & Management2331-19752022-12-019110.1080/23311975.2022.2114304The non-linear impact of financial leverage on cash holdings: Empirical evidence from VietnamHung Phan Tran Minh0Kim Nguyen Thi1Loan Pham Thi Be2Present Position: Manager of Fintech Project - Hoa Sen University, University/Institution: Hoa Sen University, 08 Nguyen Van Trang, Ben Thanh Ward, District 1, Ho Chi Minh City, VietnamPresent Position: Manager of Fintech Project - Hoa Sen University, University/Institution: Hoa Sen University, 08 Nguyen Van Trang, Ben Thanh Ward, District 1, Ho Chi Minh City, VietnamLecturer, University/Institution: University of Economics, the University of Danang, 71 Ngu Hanh Son, Bac My An Ward, Ngu Hanh Son District, Da Nang City, VietnamThis article examines the non-linear relationship between financial leverage and cash holdings in the emerging market context—Vietnam. We use the dynamic model with the system generalized method of moments (SGMM) estimator and the comprehensive data set of stocks listed on the Vietnamese stock market from 2007 to 2019. The database is collected from accounting data related to 513 Vietnamese firms’ characteristics and provided by Fiin Pro. We indicate that financial leverage exerts a negative impact on cash holdings at low levels, but the relationship becomes positive at high levels of financial leverage. We further find that short-term and long-term debt are non-linearly related to cash holdings. Our findings offer implications for managers to operate their firms at different levels of financial leverage. Firms at low levels of financial leverage should tend to hold less cash and issue debt since the addition of debt to adapt investment and operation could maximize corporate value. In contrast, firms at high levels of financial leverage could hoard cash to mitigate the likelihood of financial distress, bankruptcy and to reserve borrowing capacity because such firms are more likely to experience financial distress and go bankrupt. Policymakers could draw up policies to reduce the likelihood of experiencing financial distress and bankruptcy, such as the decrease of the debt financing and the increase of the likelihood of equity financing.https://www.tandfonline.com/doi/10.1080/23311975.2022.2114304Vietnamese listed firmsfinancial leveragecash holdingsnon-linear relationshipdynamic models |
| spellingShingle | Hung Phan Tran Minh Kim Nguyen Thi Loan Pham Thi Be The non-linear impact of financial leverage on cash holdings: Empirical evidence from Vietnam Cogent Business & Management Vietnamese listed firms financial leverage cash holdings non-linear relationship dynamic models |
| title | The non-linear impact of financial leverage on cash holdings: Empirical evidence from Vietnam |
| title_full | The non-linear impact of financial leverage on cash holdings: Empirical evidence from Vietnam |
| title_fullStr | The non-linear impact of financial leverage on cash holdings: Empirical evidence from Vietnam |
| title_full_unstemmed | The non-linear impact of financial leverage on cash holdings: Empirical evidence from Vietnam |
| title_short | The non-linear impact of financial leverage on cash holdings: Empirical evidence from Vietnam |
| title_sort | non linear impact of financial leverage on cash holdings empirical evidence from vietnam |
| topic | Vietnamese listed firms financial leverage cash holdings non-linear relationship dynamic models |
| url | https://www.tandfonline.com/doi/10.1080/23311975.2022.2114304 |
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