The role of financial constraints on precautionary cash holdings: evidence from Pakistan

Figures & data

Table 1. Names and measurement of the variables.

Name of Variables	Denoted by	Measured by
Cash	CASH	Ratio of cash and cash equivalents to net assets.
Cash Flow Volatility	CVCF	It is measured as coefficient of variation of the firm’s yearly cash flow of past four years.
Cash Flow	CF	Ratio of cash flow to net assets.
Leverage	L	Ratio of total debt to net assets
Size	SIZE	Natural logarithm of firm’s asset.
Growth Opportunities	TQ	Ratio of market value of equity plus book value of debt to net assets.
Crisis	CRISIS	Dummy variable which takes the value of 1 for the year 2007 and 2008 and zero otherwise.

Table 2. Correlation matrix.

	Size	Dividend	KZ index	Group Affiliation
Size	1
Dividend	0.130	1
	(0.01)***
KZ index	−0.102	−0.312	1
	(0.03)**	(0.04)**
Group Affiliation	0.036	0.010	0.05	1
	(0.05)**	(.311)	(0.621)

Notes: The table provides correlation among different Financial Constraint Criteria. These criteria are used to divide firms into constraint and unconstraint groups. P-values are reported in parenthesis, where ***, **, * indicate coefficients significance level: 1%, 5% and 10% respectively.

Source: Authors’ calculations.

Table 3. Descriptive statistics.

Variables	Mean	Std	25th percentile	Median	75th percentile
Cashi.t	0.153	0.512	0.007	0.045	0.126
CVCFi.t	3.245	45.649	0.341	0.363	1.329
CFi,t	0.1553	0.512	0.032	0.126	0.084
Sizei,t	6.439	1.332	5.297	6.290	7.342
Tqi,t	1.234	0.503	0.892	0.959	1.394
Li,t	0.512	0.310	0.259	0.356	0.635

Notes: The table provides descriptive statistics of variables used in the study. The variables are Cash measure as cash and cash equivalents to net assets (Cash_i,t), Cash Flow volatility measure as coefficient of variation of the firm’s yearly cash flow of past four years (CVCF_i,t), Cash Flow measure as operating income before depreciation normalised by net of assets (CF_i,t), Size measure as natural log of total assets (Size_i,t), Tobin’s Q measure as a ratio of market value of equity plus the book value of debt to total assets (Tq_i,t) and leverage which is measure as ratio of debt to total assets (L_i,t).

Source: Authors’ calculations.

Table 4. Cash flow volatility and cash holdings.

Financial Constraints Criteria
	Size		Dividend		KZ index		Group Affiliation
	Unconstrained Firms	Constrained Firms	Unconstrained Firms	Constrained Firms	Unconstrained Firms	Constrained Firms	Unconstrained Firms	Constrained Firms
CVCFi,t-1	−0.013	0.016	−0.139	0.0005	0.001	0.042	0.027	0.0014
	(0.863)	(0.026)	(0.294)	(0.035)	(0.329)	(0.384)	(0.279)	(0.032)
CFI,t	0.054	0.005	4.335	0.0017	0.563	−0.432	0.175	0.118
	(0.032)	(0.028)	(0.082)	(0.024)	(0.258)	(0.338)	(0.035)	(0.056)
Sizei,t-1	0.251	0.6535	−1.132	−0.182	0.232	−0.028	0.216	−0.032
	(0.341)	(0.217)	(0.339)	(0.212)	(0.718)	(0.755)	(0.366)	(0.721)
TQi,t-1	−0.346	0.025	0.581	0.075	0.286	0.388	−0.225	−0.433
	(0.225)	(0.537)	(0.352)	(0.511)	(0.717)	(0.804)	(0.352)	(0.043)
Li,t-1	2.813	−0.276	3.443	−0.156	0.216	0.035	0.354	−0.632
	(0.052)	(0.084)	(0.237)	(0.271)	(0.475)	(0.652)	(0.032)	(0.354)
Cashi,t-1	0.031	0.325	0.075	0.563	0.252	0.239	0.156	0.529
	(0.056)	(0.035)	(0.752)	(0.023)	(0.832)	(0.426)	(0.363)	(0.042)
CRISIS	0.19	0.22	0.29	0.34	0.25	.28	.38	.34
	(.06)	(.026)	(.075)	(.036)	(.132)	(.09)	(.293)	(.013)
Hansen Test (df)	7.134(13) 6.515(18)		2.683(15) 10.709(20)		6.090(16) 6.215(15)		4.129(15) 5.075(16)

Notes: The table provides the estimation output of the model used in the study performed through GMM. Here cash (Cash_it) is the dependent variable. Independent variables include cash flow volatility (CVCF_i,t-1), cash flow (CF_I,t),size (size_i,t-1), Tobin’s Q (TQ_I,t-1), lagged value of cash and crisis dummy which takes the value of 1 for 2007–2008 and 0 otherwise. This model is applied when firms are classified into constrained/unconstrained groups on the basis of four Financial Constraint criteria, i.e., Size, Dividend, KZ index, Group Affiliation. Hensen test of over identifying restriction is implied with null hypothesis of instrument validity. P-values are reported in parenthesis.

Source: Authors’ calculations.