THE EFFECT OF THE MEXICAN CRISIS ON CORPORATE CASH HOLDINGS

We investigate the determinants of cash holdings of Latin American firms before and during the Mexican crisis of 1994-1995 we find that firms decrease their cash holdings during the crisis controlling for firm size and market value measures we also find that firms with greater growth opportunities increase their cash holdings during the crisis. These findings are consistent with reduced liquidity associated with the crisis that causes firms to hold a relatively smaller proportion of their assets in cash. The results are also consistent with an increased precautionary motive for holding cash by high growth firms due to potentially fewer sources of alternate financing.