Market Share and Cash Policy: Evidence from Western European Companies

Abstract

This study analyses the impact of market share on corporate cash policy in a static as well as a dynamic framework. Using a panel data set of large firms in 14 European countries, we show that firms with high market share tend to have lower cash holdings. This relationship between market share and cash policy is most apparent when predation risk, measured using either the similarity of a firm's technology with its industry rivals or market concentration, is high. These findings are robust for different estimation methods, different variables definitions, and for controlling for possible endogeneity between cash holdings and market share.

A study on relationship between market share and cash flow policy

“…= 0.000). The results of this survey is consistent with findings of Schoubben and Van Hulle (2012) where they reported a reverse and meaningful relationship between size of the firm and cash holding. The results are also consistent with findings of Ferreira and Vilela (2004) who reported that cash holdings were positively influenced by the investment opportunity set and cash flows and negatively influenced by asset's liquidity, leverage and size.…”

“…Nevertheless, they reported that investment-q; sensitivity and investment speed were highest in oligopolistic industries, implying that the value of investing strategically could outweigh the value of waiting. Schoubben and Van Hulle (2012) investigated the effect of market share on corporate cash policy in a static as well as a dynamic framework based on a panel data set of large firms in 14 European countries. They reported that firms with high market share could have lower cash holdings.…”