Corporate cash holding and firm value

Cristina Martínez‐Sola · Pedro J. García‐Teruel · Pedro Martínez Solano

237 citations0/0 files storedApplied Economics

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Corporate Finance and Governance Financial Analysis and Corporate Governance Working Capital and Financial Performance

Abstract

This study contrasts the effect of cash holding on firm value for a sample of US industrial firms during 2001–2007. The study tests empirically for the existence of an optimal cash level that maximizes firm value. Second, the study analyses whether or not deviations from the optimum cash level reduce firm value. The results show a concave relation between cash holding and firm value, verifying the existence of an optimum level of cash holding. Additionally consistent with the initial analysis, deviations above and below optimal cash holding decreases the firm value.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1984Corporate financing and investment decisions when firms have information that investors do not have 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1936The General Theory of Employment, Interest and Money.1977Determinants of corporate borrowing 1984The Capital Structure Puzzle 1988Management ownership and market valuation

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