1. 1 Financial Crisis and Corporate Cash Holdings: Evidence from East Asian Firms Discussant I-Ju Chen, Yuan Ze University, Taiwan The NTU International Conference on Finance, 2010

2. 22 Objectives  Examine the long-term impact of Asian financial crisis on firms’ cash holding policies.

3. 3 Theories about firm’s holding excess cash  Transactional cost motive  Precautionary motive  Agency motive The authors specifically investigate the time-series cash holding pattern from precautionary motive perspective.

4. 4 Findings  A structural change in the time-series of the firms’ cash holdings (CH).  after the financial crisis, the mean ratio increases to 16% in 2006.  Conservative investment policy  Capital expenditure decrease as well as M&A activities  The changes in firm characteristics can not explain the increase of firms’ cash holdings  Overall findings: partially consistent with precautionary motive

5. 5 General Comments  Well written and affluent paper  Try to complement Bates, Kahle, and Stulz’s (2009, JF) findings: how cash policy change in time-series pattern  changes in risk, net working capital, R&D investment  exogenous shock

6. 6 Specific Comments - Hypotheses Development  Precautionary motive  holding cash to hedge for future cash shortfalls  firms tend to have large cash holdings when they have higher cost of external finance  Implication for firms’ experiencing exogenous shocks:  Managers are more sensitive to risk  Firms who are more difficult to raise fund will hold more cash  Ex: financial constrained, small, non-dividend pay, or high- leveraged firms  More conservative and hold more cash => Firms change their demand fu. for cash

7. 7 Specific Comments - Hypotheses Development  Transaction cost motive  Cash payment is cheaper than converting non-cash asset  Large firms hold less cash  Implication for firms’ experiencing exogenous shocks?  Is it possible that firms become more difficult to convert their investment or noncash asset, so holding more cash for transactional needs?

8. 8 Specific Comments - Hypotheses Development  Agency motive  Holding excess cash for managerial self interests  Data limitation => authors do not test if cash holding policy affected by agency concern after the crisis  Implication for firms’ experiencing exogenous shocks?  Is it possible that firms with worse agency problem hold more cash? (Dittmar, Marht-Smith, and Servaes, 2003; Harford, Mansi, Maxwell, 2006)

9. 9 Specific Comments - Hypotheses Development  More specific discussions about the relation between the CH and exogenous shocks under each perspective.  unclear prediction about how transaction cost motive to the change in cash holdings  unclear explanation about how agency concern will affect the cash holdings of the firms

10. 10 Specific Comments  Empirical Findings  Table 2: leverage and equity issuance

11. 11 Specific Comments  Empirical Findings  Is it possible that firms become more difficult to get external funds either from debt or equity issuance, so holding more cash either for precautionary or transactional needs?  Or, is it possible that the increase in the cash ratio may be the by-product for less liquidity of financial market so firms increase cash holding to offset high transaction costs of their non-cash investment?  Increase in CH may due to TC or PC motives of firms.  Further test about how transaction cost motive affects cash holdings is helpful to differentiate the effect for changes of CH policy.

12. 12 Specific Comments  Empirical Findings  Table 3 A significant relation between cash and investment may imply fewer source of funds available after the crisis. However, how can we differentiate its causes?

13. 13 Specific Comments  Methodology  why not test the transaction cost motive for cash holding?  why not control for agency issue in the regression models such as table 3 or table 8?  It is not clear how exogenous shock affect the transactional motive of cash holdings?  We also unclear how agency concern affect cash holdings?

14. 14 Specific Comments  Methodology  Given that A, B, C may influence Q, it might prelimanary to conclude that change of Q is caused by B without controlling the potential effect of A and C. B C Q A △Q△Q B + C + + + A ? ?