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Analyzing the Effect of Excess Cash Accumulation on Financial Decisions

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  • Mª Belén Lozano García

    (Universidad de Salamanca [España] = University of Salamanca [Spain])

Abstract

In this current moment of crisis it is very important for firms to hold a suitable amount of cash. But it is also very important to analyze how this amount of cash affects firm value. Here an in-depth study is made of the determination of firm value centering our attention on the problem of excess cash accumulation. This paper adds important value to the existing literature since, employing the panel data methodology in the sample of Spanish non-financial firms, it identifies whether excess cash holding affects firm value in general, and investment, financing and dividend decisions in particular. The results show how asymmetric information among the economic agents of the firm affects the cash reserves. In particular, shareholders could penalize the investment made by these firms and consider the positive effect that the debt in particular and the dividend policies exert on the firm. Moreover, the results reveal the importance of financial flexibility as opposed to the arguments provided by agency theory.

Suggested Citation

  • Mª Belén Lozano García, 2011. "Analyzing the Effect of Excess Cash Accumulation on Financial Decisions," Post-Print hal-00704672, HAL.
    • Handle: RePEc:hal:journl:hal-00704672
    DOI: 10.1080/00036846.2011.566195
    Note: View the original document on HAL open archive server: https://hal.science/hal-00704672v1
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    References listed on IDEAS

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    1. Mar𨁂el鮠Lozano & Simone Caltabiano, 2015. "Cross institutional cash and dividend policies: focusing on Brazilian firms," Applied Economics, Taylor & Francis Journals, vol. 47(3), pages 239-254, January.

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