Analysing the effect of excess cash accumulation on financial decisions

María Belén Lozano

Applied Economics, 2012, vol. 44, issue 21, 2687-2698

Abstract: In this current moment of crisis it is very important for firms to hold a suitable amount of cash. But it is also very important to analyse how this amount of cash affects firm value. Here an in-depth study is made of the determination of firm value centring our attention on the problem of excess cash accumulation. This article adds important value to the existing literature since, employing the panel data methodology in the sample of Spanish nonfinancial firms, it identifies whether excess cash holding affects firm value in general, and investment, financing and dividend decisions in particular. The results show how asymmetric information among the economic agents of the firm affects the cash reserves. In particular, shareholders could penalize the investment made by these firms and consider the positive effect that the debt in particular and the dividend policies exert on the firm. Moreover, the results reveal the importance of financial flexibility as opposed to the arguments provided by agency theory.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2011.566195 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:44:y:2012:i:21:p:2687-2698

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2011.566195

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().