An Empirical Investigation of Cash-Holding Determinants in the US Hotel Industry

This study examines the determinants of cash-holding levels for US hotel firms. Using data from 67 publicly traded US hotel firms from 1997 to 2008, we construct a weighted least-squares (WLS) regression model to test the roles of seven firm-specific factors in establishing corporate cash-holding levels. Firm size, cash flow from operations, and dividend paying correlated negatively with cash reserves, while leverage, investment-opportunity set, and capital expenditures were positively related to cash-holding levels. Net working capital was insignificantly related. These findings support the trade-off theory in general and the precautionary motive and the transaction motives specifically as important drivers of cash holdings decisions in today’s hotel firms.