Cash levels, motives for cash holding and its role in small and medium enterprises in the context of risk biased decisions in an uncertain world

Grzegorz Marek Michalski


Purpose. The main purpose of the paper is a scientific discussion about the influence of risk and uncertainty on cash levels in enterprises in the context of their business environment. The aim of the study is to determine the rules governing the modern cash management in small and medium enterprises with a full operating cycle with particular emphasis on environmental conditions influencing enterprises. Having a full operating cycle is defined as a situation in which the small or medium enterprise has a stock of materials or raw materials, which then as a result of the technological process converts the finished products, offers them for sale through both cash sales and sales on the basis of the use of trade credit receivables. Research hypothesis is the belief that the currently observed in many companies operating in industries using full operating cycle, assessed by investigators as "excessive" cash reserves, are dependent on factors that give to describe the relationship between risk and uncertainty and the expected and realized under conditions of risk and uncertainty in the value added generated by enterprises with a full operating cycle. External factors resulting from the economic situation surrounding the company, interact with the operating cycle of the overall enterprise operational risk which is reflected in the level of cash held. At the core of the research hypothesis is the belief that the level of cash and cash management policies in the enterprise in an integrated manner with other elements resulting from the operating cycle contribute to moderating the risk of the enterprise and that it can be shown using empirical data from companies operating effectively in practice business.

Methodology. Paper at first present and discuss theoretical relations between cash levels and risk the enterprises face, and next is shown how such relations are seen in empirical data from firms operated in CE countries.

Results. The main results and findings of the research illustrate the main relations discussed in theoretical part of the paper.

The theoretical contribution. Main implications of the paper to the engineering economy are connected with conception profits from building theoretical model describing motives in holding cash levels as the answer on risk and uncertainty.

Practical implications. Main implications of the paper to the practice of the firm using engineering economy solution to managing its operations are connected with practical implementation of model describing motives in holding cash levels as the answer on risk and uncertainty presented in the paper.

Acknowledgements. The presented paper and results is part of monothematic cycle realized as part of grant titled: Cash management in small and medium enterprises that use full operating cycle. This work was supported by Narodowe Centrum Nauki (National Science Centre, Poland). The research is financed from the Polish science budget resources in the years 2015–2018 as the research project financed by National Science Centre granted according decision nr DEC-2014/13/B/HS4/00192 (project number: 2014/13/B/HS4/00192).



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