Current Trends in the Management of Cash Holdings in Russian Public Companies in the Context of the Precautionary Motive

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Abstract

The author examines the specifics of asset management by Russian public companies in the context of financial constraints. Financial flexibility and liquidity of shares (their attractiveness) allow adjusting the capital structure. When access to debt capital markets is limited, financial flexibility is an indicator reflecting corporate policy in the field of financing business activities. Deviation from the target debt level requires subsequent adjustment of the capital structure to bring it closer to the optimal value. Liquidity of shares is a signal for investors and is determined by the value of the organization’s assets. High liquidity of shares makes it possible to create a monetary reserve for maintaining financial stability (solvency). Net capital (net worth) characterizes the state of internal reserves of the organization for maintaining its stable position; it is a factor determining the choice of financing option. Guided by a precautionary motive, Russian public companies save part of the monetary resources for their subsequent use as an investment component. The tight monetary policy of the Bank of Russia forces organizations to reduce their activity, abandoning investment projects. In the article, regression model is implemented based on the application of the Generalized Method of Moments (the Arellano-Bond dynamic panel-data estimation procedure) to assess the management of monetary assets. The presented specification allows us to solve the problem of endogeneity (correlation of explanatory variables with an error in the model).

About the authors

S. Lutsenko

Center for Economic Analysis of Law and Problems of Law Enforcement, Institute of Economic Strategies; Expert Council of the State Duma Defense Committee of the Federal Assembly of the Russian Federation

Email: scorp_ante@rambler.ru
Moscow, Russian Federation; Moscow, Russian Federation

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