The Effect of Firm Size and Financial Leverage on the Corporate Cash Holding Behaviour of Listed Firms in Vietnam's Transport Sector
Keywords:
Corporate cash holding behaviour, firm size, financial leverage, transport sector, VietnamAbstract
Background: Research on cash holding behaviour in emerging markets is limited, particularly in capital-intensive sectors such as transportation.
Objective: This paper examines the impact of firm size and financial leverage on cash-holding behaviour among listed transport firms in Vietnam, aiming to provide insights for enhancing corporate financial management in capital-intensive sectors.
Methodology: Research data were gathered from 60 transport firms listed on the Vietnam Stock Exchange between 2016 and 2023. The study utilises OLS, FEM, and REM models to analyse the impact of two primary independent variables (firm size - SIZAS and financial leverage - LEVE) on corporate cash-holding behaviours, as well as GLS regression to address the model's shortcomings. We incorporate control variables that correspond to both internal and external factors of the firm, including return on total assets (ROA), market-to-book ratio (MTBR), debt maturity (DEBM), current ratio (CURR), firm age (FAGE), market-to-book (MTB), real interest rate (RIR), inflation (INF), and GDP growth (GDP). Two indicators represent corporate cash-holding behaviour: the cash holding ratio (CASHD) and the cash ratio (CASHCL); therefore, two regression models are analysed.
Result: The main results of the study indicate that firm size has a negative influence on the cash ratio, but it does not significantly affect the cash holding ratio. In contrast, financial leverage shows a negative relationship with the cash holding ratio but has no significant impact on the cash ratio.
Conclusion: In the emerging markets' transportation sector, larger firms enjoy improved access to finance, diminishing the necessity to retain cash. Firms with elevated debt ratios often face significant financial costs, thereby depleting their cash reserves.
Unique Contribution: The study adds sector-specific evidence to the literature on cash management in emerging markets.
Key Recommendation: Future studies could broaden their focus to include additional macroeconomic variables and sectors, offering a more comprehensive perspective.
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