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The Value of Liquidity - Do Investors Price Corporate Cash Concistently during the Buinsessn Cycle

Nitzsche, Anton and Elshult, Kristoffer (2010)
Department of Business Administration
Abstract
Large, mature firms with lower asset volatility are found to be less influenced by cash ratios during the business cycle while the stock returns of all other firms are highly influenced. A positive relationship is established between the cash-ratio and stock performance, but no specific benefit of cash during downturns can be established for the entire sample. Favoured by cash in downturns are firms with strong growth prospects and firms lacking a controlling blockholder. Firms with strong earnings and low uncertainty abount investment opportunities are more severely penalized for cash holdings during upturns. Firms with a blockholder are not dependent on cash in downturns but suffer in return from a strong discount in upturns. We discuss... (More)
Large, mature firms with lower asset volatility are found to be less influenced by cash ratios during the business cycle while the stock returns of all other firms are highly influenced. A positive relationship is established between the cash-ratio and stock performance, but no specific benefit of cash during downturns can be established for the entire sample. Favoured by cash in downturns are firms with strong growth prospects and firms lacking a controlling blockholder. Firms with strong earnings and low uncertainty abount investment opportunities are more severely penalized for cash holdings during upturns. Firms with a blockholder are not dependent on cash in downturns but suffer in return from a strong discount in upturns. We discuss different explanations for the observed patterns and see basically three explanatory trajectories, either related to (i) corporate governance and asymmetric information, (ii) the purpose of the held cash, (iii) and the required level of cash for the firm to keep investing (Less)
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author
Nitzsche, Anton and Elshult, Kristoffer
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Cash, stock return, business cycle, upturn, downturn, capital structure, corporate governance, agency theory, Nordic market, Management of enterprises, Företagsledning, management
language
Swedish
id
1625289
date added to LUP
2010-06-07 00:00:00
date last changed
2012-04-02 18:08:36
@misc{1625289,
  abstract     = {Large, mature firms with lower asset volatility are found to be less influenced by cash ratios during the business cycle while the stock returns of all other firms are highly influenced. A positive relationship is established between the cash-ratio and stock performance, but no specific benefit of cash during downturns can be established for the entire sample. Favoured by cash in downturns are firms with strong growth prospects and firms lacking a controlling blockholder. Firms with strong earnings and low uncertainty abount investment opportunities are more severely penalized for cash holdings during upturns. Firms with a blockholder are not dependent on cash in downturns but suffer in return from a strong discount in upturns. We discuss different explanations for the observed patterns and see basically three explanatory trajectories, either related to (i) corporate governance and asymmetric information, (ii) the purpose of the held cash, (iii) and the required level of cash for the firm to keep investing},
  author       = {Nitzsche, Anton and Elshult, Kristoffer},
  keyword      = {Cash,stock return,business cycle,upturn,downturn,capital structure,corporate governance,agency theory,Nordic market,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {The Value of Liquidity - Do Investors Price Corporate Cash Concistently during the Buinsessn Cycle},
  year         = {2010},
}