Revisiting the concept of a competitive “cash advantage”

Abstract

Purpose

The purpose of this paper is to profile how ample cash holdings can serve as a competitive advantage by first mitigating the risk of becoming a forced seller during times of distress, and then positioning a firm to take strategic advantage of forced selling and other forms of distress-generated opportunities.

Design/methodology/approach

The author reviews the changing role of cash over time in corporate strategy, and how inadequate cash has caused or contributed to corporate failures.

Findings

The findings of this paper, which are supported by historical and contemporary examples, are that ample cash reserves can be a powerful source of comparative advantage.

Practical implications

This article supports earlier work published in Strategy & Leadership that shows how Graham-and-Dodd-based analysis is a viable avenue of academic research and a viable method with which to assess and formulate corporate strategic initiatives such as mergers and acquisitions, share buy-backs, risk management and, in this case, the strategic uses of cash.

Originality/value

This paper offers leaders and financial executives a practical explanation of how ample cash holdings can serve as a competitive advantage.

Citation

Calandro, Jr., J. (2015), "Revisiting the concept of a competitive “cash advantage”", Strategy & Leadership, Vol. 43 No. 4, pp. 38-46. https://doi.org/10.1108/SL-03-2015-0024