Monetary loosening and cash holdings: Evidence from an emerging market

Vietnamese government consistently pursues an expansionary policy during the period from 2007 to 2017. In addition, as an emerging market, Vietnam monetary policy relies mainly on quantity-based mechanism. We investigate the effect of monetary expansion on corporate cash holdings in Vietnamese stock market. We argue that monetary loosening negatively affects cash holdings via both precautionary and transaction cost motives. With a sample of 4,503 observations from 751 firms, we find that money supply growth is negatively related to cash holdings, cash-cash flow sensitivity and value of cash.