U.S. Corporations are Sitting on Piles of Cash. What is the Situation in Norway? Which Determinants Might Explain the Causes of Norwegian Cash Holding?

Abstract

In the past three decades cash holding for U.S. firms have more than doubled. The goal of this thesis is to examine if the cash phenomenon in the U.S. is also existent in Norway. We investigate publicly traded firms in Norway over the period 1996 to 2016. More specifically, we examine the evolution of cash holdings over time, which determinants might explain the causes of cash holding and whether there are differences across industries.

The findings show that the cash ratio increased in Norway from 20.3% in 1996 to 23.4% in 2006, a trend similar to the one in the U.S. documented by Bates, Kahle, and Stulz (2009). During the financial crisis we document a 7% decline in the cash ratio in Norway, while it remained high in the U.S. Norwegian firms have an overall higher leverage ratio than U.S. firms, and we identify a negative relation between cash holding and leverage. The findings also reveal that smaller firms and firms that are financially constrained hold higher cash levels. Cash increases with R&D spending and high market to book values, which both measures growth opportunities. Furthermore, we find substantial variation in cash levels across the seven industries studied. The IT- and Healthcare sectors are the ones holding the most cash. Of the typical arguments for holding cash we find the precautionary motive most relevant.