Cash Holdings and the Financialisation of Latin American Nonfinancial Corporations

Abstract

the growth in cash holdings by non-financial corporations in emerging economies in general and Latin American in particular has received less attention compared to their peers from advanced economies. Taking into account that cash holdings contain not only cash but also short-term, interest-bearing assets, we test whether financial profitability measured by the weight of financial income over total revenues was one motive behind the increase in this type of financial asset as it is claimed in analyses of the financialisation of the firm. We use a panel of nonfinancial firms from Argentina, Brazil, Chile, Colombia, Mexico and Peru to test this hypothesis and find supporting evidence for the Brazilian case only.

Determinants of corporate cash holdings in South Africa

“…This increased involvement with finance is a result of behavioural changes within firms and, especially among listed companies, a shift in power benefiting financial shareholders (Davis 2018;Lazonick and O'Sullivan 2000). Empirically, financialization has been linked to rising cash holdings and liquidity on corporate balance sheets (see Karwowski (2018) for South Africa; Davis (2018) for the USA; Jibril et al (2018) for Brazil; and Rabinovich and Artica (2020) for Latin America).…”

Whither corporate financialization? A literature review

“…Cash holdings were particularly high among those NFCs that were more likely to “disgorge the cash” to shareholders and attained higher interest income (Davis, 2018b). This relation between cash holdings and financial income, however, was recently called into question by Rabinovich and Artica (2020) who investigated South American companies. Beyond cash holdings, Davis (2016, p. 128) highlighted the “bifurcation in the acquisition of debt” according to which larger corporations increased their leverage along with their acquisitions of financial assets while smaller corporations deleveraged (see also Bates et al., 2009).…”