Cash holdings in SMEs: speed of adjustment, growth and financing

  • Cristina Martínez-Sola
  • Pedro J. García-Teruel
  • Pedro Martínez-Solano


This paper studies the effect of growth opportunities, financial constraints and financial distress on the speed of adjustment of small and medium-sized enterprises (SMEs) to their target cash holdings. We use a sample of Spanish SMEs from the period of 1998 to 2012. The results support the existence of a target cash holding level to which small firms attempt to converge. Additionally, consistent with the precautionary motive for cash holdings, the results show that SMEs with greater growth opportunities adjust more quickly to their target cash holding level to preserve their financial flexibility and to be able to take advantage of profitable investment opportunities when they arise. Moreover, for SMEs in financial difficulties, the adjustment speed of cash is higher to avoid financial distress costs. Finally, we observe a faster speed of adjustment for cash holding in the crisis period for all firms, as a possible response to the credit restrictions faced by SMEs.


Cash holdings Speed of adjustment SMEs 

JEL classification

G30 G31 


Funding information

This research is part of project ECO2013-47486-P financed by the Research Agency of the Spanish government. We also acknowledge financial support from “Fundación CajaMurcia”.


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  • Cristina Martínez-Sola
    • 1
  • Pedro J. García-Teruel
    • 2
  • Pedro Martínez-Solano
    • 2
  1. 1.Department of Finance and Accounting, Faculty of Economics and BusinessUniversity of AlicanteAlicanteSpain
  2. 2.Department of Management and Finance, Faculty of Economics and BusinessUniversity of MurciaMurciaSpain

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