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Analyst expertise and the value of cash holdings

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  • Louise Yi Lu
  • Yi (Ava) Wu

Abstract

This study investigates whether analyst expertise mitigates the value destruction associated with an increase in cash holdings. We find that analyst expertise increases the marginal value of cash holdings, and that this effect is more pronounced for firms in an environment where analysts’ forecasts are more dispersed and for firms with weaker monitoring from institutional shareholders. Overall, our results are consistent with our conjecture that analyst expertise enhances external monitoring, thereby preventing potential misuse of cash holdings and the associated destruction of cash value.

Suggested Citation

  • Louise Yi Lu & Yi (Ava) Wu, 2018. "Analyst expertise and the value of cash holdings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(9-10), pages 1352-1375, October.
    • Handle: RePEc:bla:jbfnac:v:45:y:2018:i:9-10:p:1352-1375
    DOI: 10.1111/jbfa.12356
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    Cited by:

    1. Mostafa Monzur Hasan & Ahsan Habib & Ruoyun Zhao, 2022. "Corporate reputation risk and cash holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 667-707, March.
    2. Luo, Haohan & Wang, Haijun & Wu, Ying, 2023. "Advertising and corporate cash holdings," Finance Research Letters, Elsevier, vol. 58(PB).
    3. Albring, Susan & Huang, Shawn & Pereira, Raynolde & Xu, Xiaolu, 2020. "Disclosure and liquidity management: Evidence from regulation fair disclosure," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(3).

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