REGULATORY DETERMINANTS OF CORPORATE CASH HOLDINGS: ASSESSING THE EFFECTS OF EU CRD IV AND NFRD ON CASH HOLDING POLICIES OF FIRMS

ABSTRACT PAPER 1: Worldwide corporate liquidity holdings are reaching unprecedented levels. Despite the costs (opportunity, agency, etc.) associated with an excessive accumulation of cash, the existence of capital market frictions, not allowing a flexible management of liquid assets, may justify the trends of recent years. Having cash on hand in fact may be crucial for a business, especially during crisis periods or when the characteristics of the financial environment are modified by particular events which make it very costly to access external funds. Our paper fits within this context and aims at assessing the spillover effects of the new European bank capital regulations (CRD IV-Basel III) on cash holding policies of firms. Assuming a reduction in bank lending in the aftermath of a capital requirements’ reinforcement, we document an increase of 0.64% in cash holdings retained by firms on average. In particular, small firms accumulate more than big firms; then the effect persists for cash-poor firms which generically hold less liquidity and have difficulties in accessing credit, but becomes negative when looking at cash-rich firms that instead possess a higher amount of cash and enjoy a privileged relationship with banks. Results highlight the short-term negative consequences of the implementation of a bank capital norm at corporate level. As such, the evidence is consistent with the hypothesis that a reduction in credit supply fosters corporate cash stock. ABSTRACT PAPER 2: The last decade saw firms’ Corporate Social Responsibility (CSR) practices gaining increasing attention from top executives and stakeholders. This growing interest in sustainable investments fomented in turn the demand for information about corporate social responsibility (CSR), pushing many jurisdictions to consider the possibility of implementing reporting mandates. Exploiting a sample of corporate data drawn by Orbis and Eikon databases, this study assesses the impact of a new European binding CSR reporting directive (NFRD 95/14/EU) on cash holding policies of firms. Results evidence an increase of 0.8% on average in corporate cash and liquid assets after the Directive implementation. Cross-sectionally, the effect appears more marked for firms characterized by higher proprietary costs and higher investment expenditures. Robustness of findings is confirmed even after controlling for agency costs. Overall, the work contributes to the debate on the impact of CSR on firm issues, looking at the direct impact of a reporting mandate on firm liquidity holdings and revealing other possible determinants of cash accumulation.