Cash Holding,Debt Maturity And Corporate Investment Efficiency: International Evidence

In this study,I look at the link between Cash holding,Short-maturity Debt and Investment efficiency in 41 countries for the period 1990-2017.The results depict an inverted U-shaped non-monotonic link between Cash holding and Investment efficiency.This indicates that below the optimal threshold of Cash holding,Underinvestment problems ensue leading to Investment inefficiencies.Similarly,beyond the optimal,Overinvestment is evident.Further analysis shows that Short-maturity Debt leads to efficient dissipation of Cash and mitigates Overinvestment problems in firms and thus promotes Investment efficiency.The results also depict that Country Legal Institutions promote efficient dissipation of Cash holding,and the monitoring effect of Short-maturity Debt on Cash holding is more pronounced in high legal enforcement countries.Several robustness tests using an alternative measure of Investment efficiency confirms the non-monotonic link and the mitigating and monitoring effect of Short-maturity Debt in the expending of Cash holding.