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Cash management strategies and firm financial performance: A comprehensive literature review

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  • Mustapher Faque

    (Ibn Haldun University, Istanbul, Turkey)

Abstract

Cash(liquidity) management is at the heart of a firm’s financial management. It is a silver lining between the bankruptcy and the success story of a company. Therefore, this study intends to contribute some insights into cash management practices and how firms can use them to achieve sound financial performance. This study provides a comprehensive literature review on existing theories and cash management practices that are useful in decision making. After the analysis of the available literature, the study highlights important theories including trade-off theory (TOT), transaction model, precautionary measures, financial hierarchy, and cash flow theory. Furthermore, management practices such as stochastic cash management model, speeding up cash collections, centralization & decentralization of management, asset portfolio diversification, and cash disbursement are discussed. The study suggests that a sound financial performance can be achieved through a hybrid approach and through adaptation and embracing innovations in cash management systems.

Suggested Citation

  • Mustapher Faque, 2021. "Cash management strategies and firm financial performance: A comprehensive literature review," Bussecon Review of Social Sciences (2687-2285), Bussecon International Academy, vol. 3(4), pages 23-30, October.
    • Handle: RePEc:adi:bsrsss:v:3:y:2021:i:4:p:23-30
    DOI: 10.36096/brss.v3i4.295
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    References listed on IDEAS

    as
    1. Ran Duchin, 2010. "Cash Holdings and Corporate Diversification," Journal of Finance, American Finance Association, vol. 65(3), pages 955-992, June.
    2. Mustapher Faque & Umit Hacioglu, 2021. "Investigating the impact of Covid-19 pandemic on stock markets:Evidence from global equity indices," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(7), pages 199-219, October.
    3. Gary E. Powell & H. Kent Baker, 2010. "Management Views on Corporate Cash Holdings," Discussion Paper Series 2010-01, McColl School of Business, Queens University of Charlotte.
    4. Agha Jahanzeb, 2013. "Trade-off theory, pecking order theory and market timing theory: a comprehensive review of capital structure theories," Economics Bulletin, AccessEcon, vol. 33(1), pages 1-6.
    Full references (including those not matched with items on IDEAS)

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