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Uncertainty and the value of cash holdings

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  • Im, Hyun Joong
  • Park, Heungju
  • Zhao, Gege

Abstract

We find that a firm facing higher uncertainty has a higher value of cash. This effect is attributed to the increased value of the option to wait and see as well as the aggravated financial constraints and mitigated agency conflicts.

Suggested Citation

  • Im, Hyun Joong & Park, Heungju & Zhao, Gege, 2017. "Uncertainty and the value of cash holdings," Economics Letters, Elsevier, vol. 155(C), pages 43-48.
    • Handle: RePEc:eee:ecolet:v:155:y:2017:i:c:p:43-48
    DOI: 10.1016/j.econlet.2017.03.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Uncertainty; Cash holdings; Real options; Financial constraints; Agency costs;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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