Abstract: This study aimed at identifying the determinants of corporate cash holding in Tanzania. Financial Institutions were excluded in this study because they are being regulated by the Central Bank of Tanzania. Two theories were used in identifying the factors that determine the level of cash held by Tanzanian companies; the pecking order theory and the trade-off theory. Secondary sources of data were used for the study. Relevant literature was reviewed while survey method was used to collect secondary data from 129 financial statements extracted from records of 129 companies in early 2015. Financial statements covered a period of 2012-2013 and were found at Business Registration and Licensing Authority (BRELA) headquarters offices in Dar es Salaam. The following variables were statistically analysed by using ordinary least square method in the light of pecking order and trade off theories: the firm size, leverage level, cash flow, net working capital and level of capital expenditure.
Findings show that there are three significant variables that determine the level of cash to be held by a company. Specifically, size of the company, cash flow and level of capital expenditure has a significant effect on the level of cash of a company. The variable size of a company is related to the trade-off theory while variables cash flow and level of capital expenditure are in favour of pecking order theory.
It is recommended that the government of Tanzania, through her Central Bank, should establish some regulations or loan policies, which are going to favour small companies so that they can easily get loans from commercial banks. This is because smaller companies have been found to hold more cash (as a cheap source of finance) than big companies. These extra sources of funds from banks, obtained at a less strings attached, will enable these small Tanzania companies to prosper and grow.
Keywords: Cash Holdings, Liquidity, trade-off theory, pecking order theory.
Title: DETERMINANTS OF CORPORATE CASH HOLDING IN TANZANIA
Author: Silverio Daniel Nyaulingo
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
Research Publish Journals
Abstract: This study aimed at identifying the determinants of corporate cash holding in Tanzania. Financial Institutions were excluded in this study because they are being regulated by the Central Bank of Tanzania. Two theories were used in identifying the factors that determine the level of cash held by Tanzanian companies; the pecking order theory and the trade-off theory. Secondary sources of data were used for the study. Relevant literature was reviewed while survey method was used to collect secondary data from 129 financial statements extracted from records of 129 companies in early 2015. Financial statements covered a period of 2012-2013 and were found at Business Registration and Licensing Authority (BRELA) headquarters offices in Dar es Salaam. The following variables were statistically analysed by using ordinary least square method in the light of pecking order and trade off theories: the firm size, leverage level, cash flow, net working capital and level of capital expenditure.
Findings show that there are three significant variables that determine the level of cash to be held by a company. Specifically, size of the company, cash flow and level of capital expenditure has a significant effect on the level of cash of a company. The variable size of a company is related to the trade-off theory while variables cash flow and level of capital expenditure are in favour of pecking order theory.
It is recommended that the government of Tanzania, through her Central Bank, should establish some regulations or loan policies, which are going to favour small companies so that they can easily get loans from commercial banks. This is because smaller companies have been found to hold more cash (as a cheap source of finance) than big companies. These extra sources of funds from banks, obtained at a less strings attached, will enable these small Tanzania companies to prosper and grow.
Keywords: Cash Holdings, Liquidity, trade-off theory, pecking order theory.
Title: DETERMINANTS OF CORPORATE CASH HOLDING IN TANZANIA
Author: Silverio Daniel Nyaulingo
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
Research Publish Journals
