Stock price reactions to corporate cash holdings in mitigating predictable and unpredictable negative shocks

Kohei Aono and Keiichi Hori

Pacific-Basin Finance Journal, 2023, vol. 79, issue C

Abstract: This paper explores how cash mitigates predictable and unpredictable adverse cash flow shocks to firms using the financial data of Japanese firms. We find that (i) cash had a positive impact on stock prices, and the impact was thoroughly reflected in stock prices before a predictable shock, (ii) after an unpredicted shock, the value of cash for the financially constrained firms is larger than that for the unconstrained firms, and (iii) the value of cash is similar between the two shocks for the unconstrained firms whereas the value is larger when the unpredicted shock occurs than when the predicted shock occurs for the constrained firms.

Keywords: Consumption tax hike; COVID-19; Cash holdings; Financial constraint; Event study (search for similar items in EconPapers)
JEL-codes: G14 G32 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x2300063x

DOI: 10.1016/j.pacfin.2023.101997

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