The Effect of Cash Flow Volatility on the Incentives for Cash Holdings: The Moderating Role of COVID-19 Pandemic

This research investigates the moderating effect of the spread of the COVID-19 pandemic on the relationship between the firm’s cash flow volatility and its level of cash holdings. To this end, we utilized data from 163 firms listed on the Tehran Stock Exchange from 2011 to 2022. The research hypotheses were tested using regression analysis with the generalized least squares (GLS) estimator. The findings reveal that firms with more cash flow volatility tend to hold more cash and during the COVID-19 pandemic, firms have maintained higher cash reserves. Furthermore, the study suggests that the COVID-19 outbreak amplifies the positive correlation between cash flow volatility and firms’ cash holdings. The research findings indicate that the cash flow volatility and the COVID-19 outbreak have escalated the cash flow risk for firms and bolstered the precautionary reasons for maintaining cash reserves. This research contributes to the literature on cash holdings and enriches the literature on the financial impacts of COVID-19 on Iranian firms