The development of financial markets and the impact of credit reforms on the relationship between asset tangibility and firm cash holdings

Credit reforms have the potential to enhance access to credit for businesses with substantial intangible assets, thereby diminishing the dependence on tangible assets for cash holdings. This article examines the influence of credit reforms on cash holdings in 42 countries over the period 2004–2019, focusing on the impact of legal rights and information sharing. Additionally, this article investigates the role of country-level financial market development in explaining the aforementioned relationship. We show that the effects of credit reforms on the relationship between cash holdings and asset tangibility are more relevant in countries with highly (less) developed stock (credit) markets.