Determinants of cash holdings-evidence from New Zealand local councils

The authors examine the likely determinants of cash holdings by New Zealand local councils. Extant finance literature suggests that organizations have transactional, precautionary and speculative motives for holding cash but empirical research on the determinants of cash holdings by local councils is still in its infancy. To examine the determinants of cash holding, the authors analysed data on a sample of 77 New Zealand local councils over the period 2000 to 2017. Managers were found to hold cash for operational and precautionary reasons. The results also suggest that local councils with better growth opportunities have greater cash holdings. Local councils with larger financing deficits, more significant capital expenditure, and higher management compensation have less cash. Overall, the findings imply that funds were being used effectively.