A transaction cost perspective on why, how, and when cash impacts firm performance

Jonathan P. O'Brien and Timothy B. Folta
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Jonathan P. O'Brien: Lally School of Management and Technology, Rensselaer Polytechnic Institute, Troy, NY, USA, Postal: Lally School of Management and Technology, Rensselaer Polytechnic Institute, Troy, NY, USA

Managerial and Decision Economics, 2009, vol. 30, issue 7, 465-479

Abstract: While both financial and behavioral theories suggest that cash holdings may be beneficial to R&D-intensive firms, agency theory would suggest that strong monitoring may be needed to ensure that cash holdings are not squandered. We contend that transaction cost economics provides a valuable lens for understanding the performance implications of cash holdings because not only does it explicate the benefits and costs of cash holdings in a single unified theoretical framework, but it further clarifies how environmental uncertainty critically moderates these relationships. Empirical tests on a large sample of US corporations yield strong support for our theory. Copyright © 2009 John Wiley & Sons, Ltd.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:30:y:2009:i:7:p:465-479

DOI: 10.1002/mde.1457

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