Cash holdings and market share growth. European evidence

Abstract

CASH HOLDINGS AND MARKET SHARE GROWTH. EUROPEAN EVIDENCE

PURPOSE OF THE STUDY The purpose of this thesis is to study whether a firm’s high cash holdings can lead to future market share gains in the product markets. I study the cash holdings and market share changes in the industry-related terms. I am also interested in finding differences in the impact between countries and industry and rival characteristics. Last, I study how the cash holdings have impacted the market share changes in the recent financial crisis from 2008-2009.

DATA My data consist of financial statement data from European public firms. I use data from 22 European countries. All the observed firms are manufacturing companies denoted with SIC codes from 2000 to 3999. The time period of the study is from 1990 to 2009. For the study of the recent financial crisis I use data from 2008 to 2009. All the data is retrieved from Thomson One Banker.

RESULTS I use the instrumental variable approach to avoid reversal causality between the cash holdings and future market share changes. From the total observed time period I find no evidence for cash holdings to improve a firm’s market share in the following years. Neither the industry or rival characteristics make difference for the results. When I estimate the cash holdings impact on future market share changes in the recent financial crisis, I find significant evidence. For example, a one standard deviation from the industry-average cash holdings increases the future market share with 1.6 percent during a financial crisis.