Determinant Factors of Cash Holdings: Evidence from Portuguese SMEs

Adequate cash levels are fundamental towards smooth operations of firms. Managers have a tendency to hold asignificant share of firms’ assets as liquid assets in order to reinvest on other physical assets, payments tostockholders and to keep cash inside the firm. Cash levels are influenced by firms´ capital structure, cash flow,investments and asset management policies as well as by theirs working capital requirements, and dividendpayments. This paper focuses on analyzing the drivers of cash holdings of non-financial Portuguesemanufacturing small and medium sized companies (SMEs), for the period 2001 to 2007. Results show that firmsize, growth opportunity, relationship with banks, cash flow uncertainty, debt structure, liquidity and leveragehave a significant influence on the level of cash holdings of non-financial SMEs in Portugal.