Measuring Excess Cash Balance and Studying its Relationship with Stock Return in Companies Accepted in Tehran Stock Exchange

Zeinolabedin Sadeghi (), Mojtaba Afshar Jahanshahi () and Amin Kalantari Darranji ()

International Journal of Academic Research in Accounting, Finance and Management Sciences, 2014, vol. 4, issue 1, 340-351

Abstract: Goal of cash management is to limit cash levels in the company and maximize stock return. Cash should be kept at a level which makes balance between cash holding cost and insufficient cash cost. The present research studied the relationship between characteristics of companies and their cash holding. Excess cash amount was measured using regression model and its relationship with stock return of companies was analyzed. Statistical population included the companies accepted in Tehran Stock Exchange from 2006 to 2011 and the statistical sample was 151 companies which were selected from among them. The research results indicated that companies with higher ratio of market value to book value and larger size held less cash reserves. It seems that the mentioned specification played a role in determining cash holding policies of companies and potentially prevented from cash accumulation in them. Also, the companies which earned cash flow resulting from higher operations had higher cash balance and excess cash holding reduced stock return of the companies; as a result, investors show undesirable reaction to excess cash.

Keywords: Operating cash flow; operating capital; excess cash; stock return (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:hur:ijaraf:v:4:y:2014:i:1:p:340-351

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