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Belgian Intragroup Relations and the Determinants of Corporate Liquid Reserves
Author(s) -
Deloof Marc
Publication year - 2001
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/1468-036x.00161
Subject(s) - pecking order , market liquidity , sample (material) , monetary economics , business , order (exchange) , payment , economics , finance , ecology , chemistry , chromatography , biology
The determinants of liquid reserves are investigated for a sample of 1038 large Belgian non‐financial firms in the 1992–94 period. The results confirm the hypothesis that the terms of payment of intragroup claims can be adjusted to the firm’s liquidity needs, thereby reducing the need for liquid reserves. Furthermore, the results confirm the transaction motive for holding liquid reserves, but only partially confirm the precautionary motive. Finally, the results indicate that liquid reserves play a significant role in the financing of new investments, as predicted by the pecking order model of Myers and Majluf (1984).