Cash Holdings Policy: a Dynamic Analysis of Brazilian Companies


  • Fadwa Muhieddine Dahrouge Instituto Nacional de Pesquisas Espaciais
  • Richard Saito Fundação Getulio Vargas



cash holdings, costs of adjustments, dynamic trade-off, liquid assets, working capital


This paper investigates how corporate cash holdings were adjusted over time for Brazilian companies during the crisis of 2008-2009. We adopt a dynamic model of corporate cash holdings to evaluate the main determinants for the speed of adjustment of cash holdings at the optimum level. We find evidence that: a) the adjustment costs of Brazilian companies are high implying a delay in reaching the optimum level of cash; b) the low speed adjustment to the optimum level is due to the limited availability of credit and the high cost of bank debt; c) during crisis, the changes in working capital are positively related to the level of cash holdings providing evidence that companies prefer finance to growth with liquidity; d) companies have looked for long-term financing to secure liquidity rather than investing on fixed assets, implying a negative relationship between investment and cash holding.

Author Biographies

Fadwa Muhieddine Dahrouge, Instituto Nacional de Pesquisas Espaciais

Instituto Nacional de Pesquisas Espaciais - INPE;;

Richard Saito, Fundação Getulio Vargas

Professor, Fundação Getúlio Vargas - Escola de Administração de Empresas de São Paulo - EAESP/FGV