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Predation risk, market power and cash policy

Hidetaka Mitani (College of Business Administration, Ritsumeikan University, Kyoto, Japan)

Managerial Finance

ISSN: 0307-4358

Article publication date: 22 May 2020

Issue publication date: 21 September 2020

310

Abstract

Purpose

The purpose of the present study is to discuss the combined effect of predation risk and firms' market power on cash holdings.

Design/methodology/approach

The authors tested hypotheses by using consolidated financial data in Japanese firms.

Findings

The authors find that firms' cash holdings increase with a rise in predation risk faced by firms. However, the higher the firm's market power, the weaker the above interplay becomes. Moreover, the authors find that even when firms' investments are decreased at the industry level, firms with larger cash holdings seek to mitigate predation risk by funding strategic investments with the potential to steal rivals' market share.

Originality/value

The authors recognize the importance of a firm's market power. Take a firm's market power into consideration to analyze the mechanism of a firm's cash holdings, there is a possibility that the mechanism of a firm's cash holdings as presented by the previous studies will be changed.

Keywords

Citation

Mitani, H. (2020), "Predation risk, market power and cash policy", Managerial Finance, Vol. 46 No. 7, pp. 897-911. https://doi.org/10.1108/MF-05-2019-0222

Publisher

:

Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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