Cash holding adjustments and managerial entrenchment

We find that, on average, firms close 31% of their gap between target and actual cash ratio each year. The adjustment speed is generally swifter if the actual cash ratio exceeds the target ratio, possibly because it is cheaper to disgorge cash than it is to raise it. But as firms become more insulated from the threat of takeovers, they decelerate their cash adjustment at high cash ratios. This evidence suggests that self-interested managers are reluctant to disburse excess cash, and they will allow cash levels to remain high unless the firms are subject to external pressure.