The Effects of Financial Constraints on Cash Management: A Study with Private Firms of the Brazilian Sugarcane Industry

Objective: The objective of this study is to analyze the effects of the financial constraints on cash management of the Brazilian sugarcane industry. Method: Fixed-effects panel regression was employed as research method, in which the financial statements of 48 private firms between 1998 and 2016 were analyzed. Originality/Relevance: Managing the cash holdings is one of the central activities of a manager, because it is through cash that organizations balance their current and future resource needs, and this decision-making process is challenging, especially in emerging markets and in private firms, where financial market constraints restrict the availability and credit flow to economic activities. Results: The results indicate that, on average, in financially constrained firms, a construct captured by size and age criteria, maintain higher percentages of their assets in cash than unconstrained firms. This result is statistically significant and consistent with precautionary motives, in which financially constrained firms manage their cash holdings in order to circumvent uncertainties in the macroeconomic environment. Theoretical contributions: This article contributes to the literature by providing evidence on the effects of financial constraints on cash management in a context of scarcity of studies with private companies and in emerging markets.