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The purpose of this paper is to investigate the relationship between firm value and cash holdings for the period 2003-2008. This study seeks to find if there are costs and benefits associated with holding too much or too little cash, then an optimal cash level exists where marginal benefits are offset by their costs. If this optimal point exists, then firm value will be maximized at that point and deviation from it will affect the firm value negatively.

Optimal cash level between firm value and cash holding is determined by investigating the concave relationship. If concave relationship exists then a residual term is included in the equation to see how deviations from the optimal level affect firm value. A two-step generalized method of moments (GMM) estimator is used in estimating all results. GMM controls for unobserved firm heterogeneity and endogeneity problems.

Results showed that a concave relationship exists between firm value and cash holdings, which confirmed that there is an optimal cash level that maximizes firm value. It was also found that deviations from the optimal level affect firm value negatively.

The paper provides the existence of an optimal point of cash between costs and benefits wherein firm value is maximized. It has implications for firms’ investment and financing decisions when there is limited access to external finance. At higher level of cash the study has implications for agency theory and governance practices.

The study establishes a conclusive relationship between firm value and cash holdings within the context of the Pakistani market.

The purpose of this paper is to investigate the asymmetric adjustment of cash holdings in Pakistani firms for above and below target firms.

The study employs generalized method of moments (GMM) to investigate the adjustment of cash holdings.

The study found that the firms which hold cash above the optimal level of cash holdings have higher speed of adjustment than the firms which hold cash below the optimal level. Financially constrained (FC) firms also adjust their cash holdings faster than financially unconstrained (FUC) firms but high speed of downward adjustment does not remain persistent after financial constraints are controlled. Findings of this study reveal this asymmetric adjustment in above and below target firms and extend these results in FC and FUC Pakistani listed firms, respectively.

The conclusion of this study has been derived under certain limitations. There is a vast space to extend this study in different dimensions. Firms operating in capital-intensive industries may provide different results for financial constraints because their policy designing would be quite different from other firms.

This study contributes to cash holdings research in Pakistan by exploring the adjustment behavior of cash holdings across Pakistani non-financial firms using econometric modeling. Downward adjustment rate is supposed to be higher than upward adjustment rate and this rate is tested using dynamic panel data model. Similarly, it is inferred that this relationship holds for above target firms even after including the financial constraints in the presented model.

The purpose of this study is to determine whether the incremental difference between the actual level of cash from the optimal amount (excess and insufficient cash) to the abnormal amount of cash (abnormal positive and negative changes in cash) leads to an increase in audit fees.

To investigate the main purpose of this study, first, the authors, respectively, estimate the optimal cash flow and the normal (optimal) changes in cash by Oler and Picconi (2014) and Bates, Kahle and Stulz (2009) models for each period. In this regard, financial information of 116 companies listed on the Tehran Stock Exchange is selected during the period 2011-2016.

The results of this investigation indicate that holding an excessive amount of cash than optimal size and audit fees are negatively associated. Moreover, it is documented that abnormal changes in cash flow and audit fees are not significantly associated.

The outcomes of the current study contribute to providing an accurate estimation to determine audit fees in emerging markets.

The purpose of this study is to explore the association between cash holdings and business strategy for nonfinancial and nonutility US firms over the period from 1970 to 2016.

The authors have used Miles and Snow's (1978, 2003) theoretical background and followed Bentley et al. (2013) to construct a strategy index. Thus, the authors have distinguished two extreme corporate strategies, prospectors and defenders, based on a firm's resource allocation and investment behavior patterns. Following the methodology of Bates et al. (2009), the authors have used the multiple regression analysis to explore the relationship between business strategy and corporate cash holdings.

The empirical results show that business strategy is positively related to cash holdings. Prospectors are more likely to hold higher cash levels than defenders. Furthermore, the authors have found that cash holding's speed of adjustment (SOA) is slower for prospectors than for defenders, suggesting that business strategy influences cash holding's trend. Interestingly, the results show that the market value of cash increases significantly only for the firms that pursue a defender strategy.

The results of this work have valuable implications for researchers, by unveiling the relationship between corporate strategy and firm's cash holdings. This study, however, is limited to a sample of US firms; empirical evidence based on international samples of firms would add value to the current literature.

The findings could be useful to financial managers and investment strategists, who seek to maximize firm value through the adoption of an effective liquidity policy. What is more, this study provides support for the view that strategic choice and optimal cash management are of great importance for firms' market value.

This study enriches the knowledge of business strategy's impact on financing policy of firms and contributes to the empirical literature of cash holdings' determinants. In addition, it complements previous studies on US firms by documenting the effect of business strategy on the SOA in cash holdings and firm value.

Companies need to decide on the optimal amounts of cash to hold. Although this problem has long been acknowledged as a major issue for corporations, new advances in the finance literature have not been fully implemented in this area. We propose here what we believe is the first modelization of a real options approach to determine the financial benefits of holding cash. We measure the benefits of holding cash if raising new capital takes time, is costly and if the firm faces the risk of having to issue underpriced securities to obtain that capital. We show that the methodology proposed leads to non‐intuitive results that warrant further research in the field and should attract academics’ as well practitioners’ attention.

A large body of empirical literature has identified the key drivers of corporate cash holdings. The extant literature posits that the existence of real options significantly influences a firm's demand for liquidity. The literature, however, has relied on indirect proxies to assess this influence. The purpose of this paper is to provide a direct method for assessing this hypothesis. It is posited that firms with valuable real options hold excess cash and liquid assets, relative to firms lacking such opportunities.

The author utilizes a procedure originally proposed by Copeland and Antikarov to identify firms with valuable real options. This procedure assumes that an option's value will rise with its underlying uncertainty and with firm's managerial flexibility, i.e. discretion over the timely exercise of the option. Without a large cash hoard, a firm with “in‐the‐money” real options may face “financing constraints” that result in foregone or delayed exercise of these options. The author extends the Copeland and Antikarov procedure to account for the firm's financing constraints. Using data from a large sample of US companies, new insights are presented on how managerial flexibility, financing constraints, and the value of the firm's real options drive its cash holdings to levels that may appear to be “irrational,” if these factors are ignored.

Cash holdings are consistently higher for firms' valuable real options. All else being the same, financially unconstrained firms hold more cash. It is also shown that: an increase in a firm's weighted average cost of capital will lead to higher cash holdings; firms with higher market power (relative sales) hold less cash; and firms with less operational flexibility (higher fraction of fixed‐to‐total assets) hold less cash. Additional results are shown in the paper.

The paper shows that the existence of valuable real options leads to an unambiguous increase in corporate cash holdings. Whether this addition to firm's cash holdings is capitalized into its equity price is an open and challenging question that deserves further study. Other promising areas for improving this line of research include: developing other measures of managerial flexibility; partitioning the volatility‐flexibility into high, intermediate, and low categories (like the Kaplan and Zingales index); and expanding the analysis to cover a longer time period. The author believes that the results are robust and will be confirmed with these and other extensions.

This is the first paper that considers the effect of a firm's real options on its demand for liquid assets and cash.

The aim of this paper is to investigate the dynamics between executive ownership and excess cash policy in the UK.

The authors identify firms adopting an excess policy using a joint criterion of high cash and cash higher than the target. Logit analysis is used to estimate the impact of executive ownership and other governance characteristics on the probability of adopting an excess cash policy.

The results suggest that, in the UK, the impact of the executive ownership on the probability of adopting an excess cash policy is non-monotonic, in line with the alignment-entrenchment hypothesis. The results are robust to different definitions of excess cash policy, to alternative specifications of the regression model, to different estimation frameworks and to alternative proxies of ownership concentration.

The authors’ approach provides a new measure of the excess target cash for the firm. They show the need to identify an excess target cash policy not only by using an empirical criterion and a theoretical target level of cash, but also by capturing persistence in deviation from the target cash level. The authors’ measure of excess target cash calls into questions findings from previous studies. The authors’ approach can be used to explore whether excess cash holdings of UK firms and the impact of managerial ownership have changed from before the crisis to after the crisis.

The authors’ measure of excess target cash allows identifying in practice levels of cash which are abnormal with respect to an equilibrium level. UK firms should be cautious in using executive ownership as a corporate governance mechanism, as this may generate suboptimal cash holdings and suboptimal firm value. Excess cash policy might be driven not only by a poor corporate governance system, but also by the interplay between agency costs of managerial opportunism and cost of the external finance which further research could explore.

Actually, “how much cash is too much” is a question that has not been addressed by the literature. The authors address this question. Also, this amount of cash allows the authors to study the extent to which executive ownership contributes to explain the out-of-equilibrium persistency in the cash level.

The purpose of this paper is to identify firms in the UK adopting a policy of high cash and low leverage and investigate how executive ownership contributes to this decision.

Firms following this policy are identified both by using a fixed classification approach and the analysis of the distribution of cash and leverage. Logit analysis is then used to estimate the probability of adopting the policy as a function of executive ownership.

Extreme financial policies are suboptimal as firms adopting these policies tend to undershoot (overshoot) their target leverage (cash holdings) ratios. The impact of the executive ownership on the probability of adopting this policy is U-shaped, in line with the alignment–entrenchment hypothesis.

Despite the substantial presence of non-executive directors in the boards and a significant amount of shareholdings by executive directors, the firms under analysis have adopted suboptimal financial policies possibly because poorly governed or because executive ownership is the range where entrenchment is feasible.

This is the first attempt at recognising policies of high cash and low leverage as being explicitly interdependent. It is also the first study focussing on the UK, a country of interest, because ownership structure is relatively dispersed. Moreover, instead of choosing fixed threshold levels of the variable in defining the extreme financial policy, this paper proposes the analysis of the distribution of cash holdings and leverage and accounts for target levels of cash and leverage.

This study conducts a logistic regression analysis of the ability of excess cash and short-term bank loans to substitute for each other and a multiple regression analysis of the factors influencing excess cash and short-term bank loans holdings. In addition, a questionnaire is used to survey the views of Taiwan’s corporate financial leaders on the factors influencing these two liquidity resources. The empirical results support a certain level of substitution between the two types of holdings. The regression analysis shows that for companies that would accumulate more excess cash when interest rates are low, have strong corporate performance, have low debt ratios, and whose chairman of the board and chief executive officer (CEO) are not the same person. Companies tend to have more short-term bank loans when corporate performance is poor, debt ratios are high, and the chairman of the board and CEO are the same person, as well as when the degree of the deviation of control is small. We find that factors on financial structure, operating performance, cost of capital and corporate governance have significant influence on the holdings of these two liquidity facilities in regression, whereas the influence factors exclude corporate governance in questionnaire.

The purpose of this paper is to investigate the impact of firms' cash holdings and ownership concentration on the firms' valuation using an unbalanced panel dataset of non‐financial listed firms in Australia.

The author used a generalized method of moments approach suitable for unbalanced panel dataset to examine the impact of firms' cash holdings and ownership concentration on firms' q‐ratios after controlling for the impact of financing, dividend and investment decisions, respectively.

The paper finds a positive relationship between cash holdings and q‐ratio of Australian firms. The ownership structure moderates the effect of cash holdings on q‐ratio in asymmetric fashion, i.e. for widely held firms, there is a positive relationship between cash holdings and q‐ratio; while for closely held firms, there is significant negative relationship between cash holdings and q‐ratio. Furthermore, changes associated with corporate governance reforms, also effect q‐ratio besides ownership structure. The paper also examined the impact of cash holdings on the market value of the firms over time. As the author predicted, increase in the cash holdings has a negative effect on the firms' market valuation, and this effect slows down over time. Overall, the empirical analysis finds support for similar findings documented for the developed countries in the literature.

The sample consists of non‐financial listed firms over the period of 1995 to 2010.

The results imply that widely‐owned firms have lower cash holdings because managers are able to access capital market easily compared to firms with concentrated ownership, which might have complex agency and information asymmetry problems. These findings are consistent with the agency costs. Managers in less widely‐held firms have more discretion over cash holding policies, and the value reduction imposed on these firms may reflect shareholders' recognition of the possibility of managerial expropriations.

This is believed to be the first paper to explore agency costs of cash holdings for Australian firms.