Impact of Free Cash Flow and the Marginal Value of Cash Holdings on Firms Overinvestment with Respect to Pakistan.

2021 ◽  
Author(s):  
Syed Abu Naveed Kashan ◽  
Danish Ahmed Siddiqui
Keyword(s):  
Cash Flow ◽  
Cash Holdings ◽  
Free Cash Flow ◽  
Marginal Value ◽  
Value Of Cash

scholarly journals Financial Statement Comparability and the Market Value of Cash Holdings

2020 ◽  
Vol 34 (3) ◽  
pp. 1-21
Author(s):  
Hyejin Ahn ◽  
Sunhwa Choi ◽  
Sunho Chris Yun
Keyword(s):  
Flow Problem ◽  
Cash Holdings ◽  
Market Value ◽  
Financial Statements ◽  
Free Cash Flow ◽  
Financial Statement ◽  
Marginal Value ◽  
Cent Increase ◽  
Value Of Cash ◽  
Industry Peers

SYNOPSIS We examine how financial statement comparability affects the market value of cash holdings. Using a sample of U.S. firms from 1991 through 2013, we find that the marginal value of cash holdings is higher for firms with financial statements that are more comparable to those of their industry peers. Specifically, a change in our comparability measure from the bottom to the top decile is associated with a 37 to 43 cent increase in the market value of an additional dollar of cash. This result suggests that financial statement comparability mitigates the agency problem associated with cash holdings (i.e., the free cash flow problem) by improving firms' information environments and thus facilitating monitoring of managers.

Audit committee members with CEO experience and the value of cash holdings

2020 ◽  
Vol 35 (7) ◽  
pp. 897-926
Author(s):  
Sunhwa Choi ◽  
Jinwoong Han ◽  
Taejin Jung ◽  
Bomi Song
Keyword(s):  
Audit Committee ◽  
Negative Impact ◽  
Cash Holdings ◽  
Chief Executive ◽  
Policy Implications ◽  
Content Type ◽  
Marginal Value ◽  
Value Of Cash ◽  
Negative Effect ◽  
Accounting Expertise

Purpose The purpose of this study is to examine whether the presence of an audit committee (AC) members with Chief Executive Officer (CEO) experience (supervisory experts) affects the market value of cash holdings. Design/methodology/approach To estimate the marginal value of cash holdings, this study uses the model proposed by Faulkender and Wang (2006). The sample is 2,031 firm-year observations in Korea from 2000 through 2015. Findings The authors find that the presence of supervisory experts on ACs has a negative impact on the value of cash holdings. This result suggests that supervisory experts on ACs weaken monitoring of managerial actions. The authors also find that the negative effect of supervisory experts on the value of cash holdings is mitigated when there are other AC members with accounting expertise. Practical implications The findings that AC supervisory expertise impairs the effectiveness of ACs, and thus destroys shareholder value have policy implications because the current regulations in many countries use a broad definition of financial expertise that includes supervisory expertise. Originality/value This is the first study that directly examines the effect of AC supervisory expertise on the value of cash holdings. The study also contributes to the literature on the role of ACs in emerging markets by documenting the limitations of corporate governance systems adopted from the Anglo–Saxon model.

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.

Over-investment, the marginal value of cash holdings and corporate governance

2015 ◽  
Vol 32 (2) ◽  
pp. 204-221 ◽  
Author(s):  
Chih Jen Huang ◽  
Tsai-Ling Liao ◽  
Yu-Shan Chang
Keyword(s):  
Corporate Governance ◽  
Agency Costs ◽  
Negative Impact ◽  
Cash Holdings ◽  
Firm Level ◽  
Content Type ◽  
Publicly Traded Companies ◽  
Marginal Value ◽  
Value Of Cash ◽  
Cash Reserves

Purpose – The purpose of this paper is to examine how investors’ valuation of cash holdings is related to firm-level investment. Design/methodology/approach – As prior studies note that holding excess cash serve as a driver to would be over-investing, and that over-investment imposes substantial agency costs on shareholders, the authors focus on the value implications of holding cash in the presence of over-investment from the perspective of shareholders. Findings – By examining the publicly traded companies on Taiwan stock market, the authors uncover that cash is valued less in firms with over-investment than in those with under-investment and the magnitude of over-investment is negatively related to the marginal value of cash holdings (MVCH). It reveals that investment activities impact the value that shareholders place on cash holdings. Moreover, further tests indicate that higher block holdings and the presence of independent directors on boards can effectively mitigate the negative impact of over-investment on the MVCH. Practical implications – This paper enhances the understanding of the valuation implications of cash reserves held by firms with over-investment and the effectiveness of governance structures in containing the detrimental effect of investment-related agency costs on the value of holding cash. Originality/value – This paper provides pioneering evidence that outside investors discount cash assets in over-investing firms to reflect their expectations that they will not receive the full benefit of these assets; and this paper extends the literature on corporate governance by assessing the role of governance mechanisms in reversing the negative relation between over-investment and the MVCH.

Financial Constraints, R&D Investment, and the Value of Cash Holdings

2015 ◽  
Vol 05 (04) ◽  
pp. 1550011 ◽  
Author(s):  
Laurence Booth ◽  
Christos Ntantamis ◽  
Jun Zhou
Keyword(s):  
Financial Constraints ◽  
Cash Holdings ◽  
Alternative Methods ◽  
Development Activity ◽  
Marginal Value ◽  
Value Of Cash ◽  
The Status ◽  
Alternative Measures ◽  
Corporate Cash Holdings ◽  
D Investment

Existing studies document that cash holdings are more valuable for financially constrained firms than for financially unconstrained firms. We investigate whether the relation between financial constraints and the value of corporate cash holdings varies across firms with different engagement in research and development activity. Among firms with R&D investment, the marginal value of cash is significantly higher for financially constrained firms than unconstrained ones, whereas this difference is weak among firms without R&D investment. Our findings are robust to alternative measures of financial constraints and alternative methods to define R&D intensity. Our study extends the cash literature by showing that the value of cash holdings is affected by the status of financial constraints and the nature of investment jointly.

Geographical proximity and value of corporate cash holdings

2020 ◽  
Vol 46 (9) ◽  
pp. 1101-1122
Author(s):  
Darshana D. Palkar ◽  
Randi L. Sims ◽  
Emre Kuvvet
Keyword(s):  
Conflicts Of Interest ◽  
Cash Holdings ◽  
Geographical Location ◽  
Geographic Location ◽  
Financial Policy ◽  
Content Type ◽  
Marginal Value ◽  
Firm Diversification ◽  
Financial Expertise ◽  
Value Of Cash

PurposeIn this paper, the authors examine the association between a firm's geographical location and the value of its cash holdings.Design/methodology/approachFollowing Loughran and Schultz (2005) and Nielsson and Wójcik (2016), the authors define firms as either geographically remote or geographically proximate based on their distance to areas that are either largely populated or concentrated in financial expertise. We also estimate the marginal value of cash using the model developed by Faulkender and Wang (2006).FindingsThe authors find that the marginal value of cash is $0.10–$0.16 lower in remotely located firms than in geographically proximate firms. The lower marginal value of cash is prominent among remotely located firms with greater severity of information asymmetry. Our findings support the view that the inability of shareholders to closely monitor how managers use of firm cash may increase the perceived conflicts of interest associated with managers' cash spending and decrease the value of cash.Originality/valuePrevious studies try to explain the cash holdings puzzle by attributing it to CEO overconfidence, external funding constraints, poor corporate governance, difference in corporate financial policy, poor investor protection, lack of firm diversification and large operating losses. This study contributes to the extant literature by offering new evidence of the role of geographic location on the value of cash holdings.

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