Corporate cash policies in Latin America over the global financial cycle

PÉREZ ARTICA, RODRIGO; RABINOVICH, JOEL

Bahía Blanca

Congreso; LIV Reunión Anual de la Asociación Argentina de Economía Política; 2019

Anual de la Asociación Argentina de Economía Política

This paper analyzes the evolution and determinants of cash holdings from NFCs belonging to Argentina, Brazil, Chile, Colombia, Mexico and Peru. Specifically, we are concerned with the effect of the global financial cycle. While different scholars have presented evidence for the hypothesis of carry trade strategies dominating corporate cash policies, its relevance vis a vis foreign exchange hedging strategies has been off-radar. Using quarterly firm level data coupled with macroeconomic information for the last 20 years, our results indicate that the effect of the global financial cycle is not as obvious as previous research suggests. Opposite to what would be expected if carry trade strategies were a dominant force behind cash ratios, the relation between foreign gross liabilities and cash is either negative or non-significant. Moreover, for specific flow-types, we find a positive relation between foreign gross assets and firm-level cash ratios.