Insight

Saving on sunny days

Researchers study the link between improved cash flows and its effect on the cash reserves,of 11 Asian economies

A penny saved is a penny earned, and no one knows that better than emerging economies in Asia. Researchers Charles Y Horioka and Akiko Terada-Hagiwara found that improved cash flows had a positive effect on the cash reserves of 11 Asian economies, indicating that companies in these places were saving at a time of plenty in order to fund future growth. However, analysis of the firms surveyed in these economies revealed that the benefits of such a situation are only seen when the firms are smaller in size. The researchers say that one reason for such cash holding behaviour might be the borrowing constraints and the underdeveloped financial sectors in these markets, had it not been for which, most firms would probably opt to invest in physical assets.

Title: Corporate Cash Holding in Asia

Source: The National Bureau of Economic Research

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