The Effect of Cash Flow Volatility on the Incentives for Cash Holdings: The Moderating Role of COVID-19 Pandemic

Document Type : Research Paper

Authors

1 Assistant Professor, Department of Accounting, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran

2 Department of Accounting, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamadan, Iran

3 Ph.D. Student, Department of Accounting, Faculty of Humanities, Islamic Azad University of Sanandaj, Sanandaj, Iran

10.22051/jera.2024.46739.3227

Abstract

This research investigates the moderating effect of the spread of the COVID-19 pandemic on the relationship between the firm’s cash flow volatility and its level of cash holdings. To this end, we utilized data from 163 firms listed on the Tehran Stock Exchange during the period of 2011-2022. The research hypotheses were tested using regression analysis with the generalized least squares (GLS) estimator. The findings reveal that firms with more cash flow volatility tend to hold more cash and during the COVID-19 pandemic, firms have maintained higher cash reserves. Furthermore, the study suggests that the COVID-19 outbreak amplifies the positive correlation between cash flow volatility and firms’ cash holdings. The research findings indicate that the cash flow volatility and the COVID-19 outbreak have escalated the cash flow risk for firms and bolstered the precautionary reasons for maintaining cash reserves. This research contributes to the literature on cash holdings and enriches the literature on the financial impacts of COVID-19 on Iranian firms.

Keywords

Main Subjects

Empirical Research in Accounting

Articles in Press, Accepted Manuscript
Available Online from 02 September 2024

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History

  • Receive Date: 29 March 2024
  • Revise Date: 01 September 2024
  • Accept Date: 02 September 2024

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