Accounting Restatements and Corporate Cash Policy

2017 ◽  
Vol 35 (2) ◽  
pp. 290-317 ◽  
Author(s):  
Huili Chen ◽  
Zhihong Chen ◽  
Dan S. Dhaliwal ◽  
Yuan Huang
Keyword(s):  
Financial Reporting ◽  
Cash Holdings ◽  
Market Value ◽  
Precautionary Savings ◽  
Difference In Differences ◽  
Accounting Restatements ◽  
Pronounced Increase ◽  
Corporate Decisions ◽  
Value Of Cash ◽  
Excess Cash

Using a difference-in-differences approach, we find that the cash holdings of firms increase significantly after announcements of irregularity-related restatements. The increase is larger for firms with a higher demand for precautionary savings and is smaller for firms with less pronounced increase in shareholder control after the restatements. Investments and repurchases of irregularity firms become more sensitive to excess cash after the restatements. In addition, we find that the market value of cash holdings increases after restatements. Overall, the evidence suggests that strengthened shareholder control reduces cash holdings, but this effect is weaker than the increase in cash holdings due to exacerbated precautionary savings concerns. Our study contributes to the literature on the effect of financial reporting credibility on real corporate decisions.

Audit Quality and the Market Value of Cash Holdings: The Case of Office-Level Auditor Industry Specialization

2014 ◽  
Vol 34 (2) ◽  
pp. 27-57 ◽  
Author(s):  
Jeong-Bon Kim ◽  
Jay Junghun Lee ◽  
Jong Chool Park
Keyword(s):  
Financial Reporting ◽  
Firm Value ◽  
Capital Investment ◽  
Audit Quality ◽  
Cash Holdings ◽  
Market Value ◽  
High Quality ◽  
Value Of Cash ◽  
Office Level ◽  
Industry Specialist

SUMMARY This study investigates the monitoring role of high-quality auditors defined as office-level industry specialists in the stock market valuation of cash assets. We find that the market value of cash holdings is significantly higher for the client of an industry specialist auditor. The marginal value of cash is 34 cents higher for the client of a joint-industry specialist at both the national and city levels than for the client of a nonspecialist. We also find that cash holdings are more closely associated with capital investment and the market value of capital investment is significantly higher when the auditor is a joint-industry specialist. Moreover, we find that the value of cash increases significantly when the client changes its auditor to a joint-industry specialist. Our findings hold even after controlling for the client's governance efficacy and financial reporting quality. Our results provide new insight into the mechanism through which high-quality audits affect firm value: External audits facilitate shareholders' monitoring over managerial cash expenditures, thereby leading market participants to attach a higher value to cash holdings.

Does financial reporting regulation influence the value of cash holdings?

2020 ◽  
Vol 59 ◽  
pp. 52-67
Author(s):  
Ahmet Karpuz ◽  
Kirak Kim ◽  
Neslihan Ozkan
Keyword(s):  
Financial Reporting ◽  
Cash Holdings ◽  
Value Of Cash

Information Shocks and Corporate Cash Policies

2020 ◽  
Vol 19 (1) ◽  
pp. 5-28
Author(s):  
C. S. Agnes Cheng ◽  
Yuan Huang ◽  
Xiao Li
Keyword(s):  
Insider Trading ◽  
Cash Holdings ◽  
Agency Problems ◽  
Information Environment ◽  
Precautionary Savings ◽  
Difference In Differences ◽  
Private Benefit ◽  
Mandatory Adoption ◽  
Cash Policies ◽  
Jel Classifications

ABSTRACT We examine how information environment affects corporate cash policy by examining the change in cash holdings around two events that lead to exogenous change in information environment, namely the initial enforcement of insider trading laws (ITLs) and the mandatory adoption of IFRS in European Union (EU) countries. Using a difference-in-differences approach, we find that firms decrease their cash holdings after both events. The decrease in cash holdings is more pronounced for firms with higher precautionary savings demand and with more severe agency problems. Additional tests show that the sensitivity of investment to cash holdings declines after the two events, consistent with the notion that the benefit of cash holdings in mitigating underinvestment and the private benefit of overinvesting cash holdings reduce after the events. Overall, our findings provide evidence that information environment improvements have real decision effects. JEL Classifications: M41; M48; G31.

Effect of Cash Holding Policy of Financially Constrained Firms on Their Market Performance

2018 ◽  
Vol 43 (1-2) ◽  
pp. 31-45
Author(s):  
Nidhi Singh
Keyword(s):  
Capital Structure ◽  
Stock Return ◽  
Market Performance ◽  
Cash Holdings ◽  
Market Value ◽  
Excess Return ◽  
Cash Holding ◽  
Market Return ◽  
Indian Context ◽  
Excess Cash

Our study is based on the methodology suggested by Faulkender and Wang (2006) in the Indian context, to discuss the various aspects of cash holding policy with respect to financially constrained (FC) and unconstrained firms. Primary goal of the study is to understand shareholders’ perception on the level of cash holdings in constrained and unconstrained firms, and how much value they give to excess cash holdings with respect to cash level and capital structure of a firm. This study also analyzes the shareholders’ perception, which is measured by stock return, and market value of asset, by determining the variation, in excess return and Tobin’s Q over the last 10 years. The result shows less or no effect of excess cash holding either in average firms or in constrained firms. Findings also suggests that shareholders, prefer large firms to maintain excess cash for investment, or to fulfil their liabilities on time. Overall the findings determine the importance of cash level but also indicate the presence of other determinants of the firms, to enhance market return and build shareholders perception.

Industry Tournament Incentives and the Product-Market Benefits of Corporate Liquidity

2018 ◽  
Vol 54 (2) ◽  
pp. 829-876 ◽  
Author(s):  
Jian Huang ◽  
Bharat A. Jain ◽  
Omesh Kini
Keyword(s):  
Chief Executive Officer ◽  
Cash Holdings ◽  
Chief Executive ◽  
Product Market ◽  
Capital Expenditures ◽  
Marginal Value ◽  
Corporate Liquidity ◽  
Value Of Cash ◽  
Excess Cash ◽  
Market Benefits

We evaluate the link between chief executive officer (CEO) industry tournament incentives (ITIs) and the product-market benefits of corporate liquidity. We find that ITIs increase the level and marginal value of cash holdings. Furthermore, ITIs strengthen the relation between excess cash and market-share gains, especially for firms that face significant competitive threats. Additionally, for firms with excess cash, higher ITIs lead to increased research and development (R&D) expenses, capital expenditures, and spending on focused acquisitions as well as reduced payouts. Overall, our findings suggest that ITIs increase the value of cash by incentivizing CEOs to deploy cash strategically to capture its product-market benefits.

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