Investigating the Asymmetric Models of Cash Holding Adjustment Speed: Dummy Variable, Quadratic and Threshold Regression Models

Subject Areas : Financial Accounting

Milad  Emamgholipour Archi ¹ (Ph.D. Student, Department of Accounting, Babol Branch, Islamic Azad University, Babol, Iran.)
Seyed Ali  Nabavi Chashmi ² (Department of Management, Babol Branch, Islamic Azad University, Babol, Iran.)
Iman  Dadashi ³ (Department of Accounting, University of Qom, Qom, Iran)
Maryam  Shafiee Kakhki ⁴ (Department of Economic, Babol Branch, Islamic Azad University, Babol, Iran.)

Received: 2021-12-27 Accepted : 2022-02-14 Published : 2023-05-01

Keywords: cash holding adjustment Speed, Asymmetric Models, Optimal Cash,

Abstract :

Proving helpful in an efficient management of cash in order to reach optimal cash and clearly explain relevant optimization policies, this study examined the adjustment speed of cash holding using asymmetric models. The sample consisted of 117 firms listed in Tehran Stock Exchange and their financial details over the 2009-2018 period. Once the optimal level for cash holding was identified, asymmetric models such as the dummy variable approach, the quadratic model, and the threshold regression model were employed to test the adjustment speed of cash holding. The results revealed that cash-rich firms are moving toward optimal cash at a greater speed than cash-poor firms. In addition, the results from the quadratic model showed a non-linear, skewing effect of the cash holding adjustment speed in terms of the different cash levels. Therefore, there is an optimal level of cash holding that enables firms to deviate from the cash target. Should firms fall outside the optimal cash range, cash adjustment will occur at a greater speed, and it will be both partial and asymmetric.

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