Journal of Applied Finance & Banking

Corporate Cash Holding: A Constraints’ solving Tool to Access to External Financing: Evidence from Tunisian Listed Firms

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• Abstract

  The objective of this paper is to explore the corporate cash holding policy. Our focus is particularly on the relationship between cash holding and leverage. We will investigate this task in a particular context which is the Tunisian economy: Jasmine Revolution. We present evidence of a significant non-monotonic relationship between cash holding and leverage. Initially, a substitution effect between leverage and cash holding is found for a low level of leverage. Then, for a higher level of leverage, firms tend to hedge against the risk of potential financial distress by holding more cash (precautionary effect). Finally by investigating this relation between cash holding and leverage in a particular context of the Tunisian economy: Jasmine Revolution; we have shown that the precautionary effect is more persistent for Tunisian companies after the revolution.