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Cash In Hand And Corporate Performance

Chen, Zeyuan and Li, Yan (2011)
Department of Business Administration
Abstract
Not long ago large cash holding in balance sheet would not be recommended. As we know, large cash in hand means the companies less invest in new projects and extend their business. However, the recent research reveals that U.S companies hold more cash than before, and the financial strength might have strong relationship with the performance. Especially during the financial crises, those who reserve more cash flow take great advantage of the flexibility compared with their competitors, since many of them avoid cash squeeze. It is noticed that after the crises U.S. firms held more cash than they did before. Furthermore financial flexibility became more important in managers’ mind (Thomas, Kathleen et al., 2009). Our paper will explain the... (More)
Not long ago large cash holding in balance sheet would not be recommended. As we know, large cash in hand means the companies less invest in new projects and extend their business. However, the recent research reveals that U.S companies hold more cash than before, and the financial strength might have strong relationship with the performance. Especially during the financial crises, those who reserve more cash flow take great advantage of the flexibility compared with their competitors, since many of them avoid cash squeeze. It is noticed that after the crises U.S. firms held more cash than they did before. Furthermore financial flexibility became more important in managers’ mind (Thomas, Kathleen et al., 2009). Our paper will explain the importance of the cash policy in a company and reveal the effect of cash holding on the performance of the company. Here return on asset (ROA) and market share are considered as indicators of the firm’s performance. We put our focus on the different cash policies in the companies among different industries. In this paper, we choose American companies as representatives. The OLS models are built based on the U.S companies’ data during 1988 to 2009. The main finding is that more excess cash will result in worse performance in product market. Moreover, companies with sufficient cash in hand tend to have lower return on assets, due to the negative NPV effects of excess cash and agency cost. During the financial crisis the adverse effect of cash is mitigated. Through investigating the performance among same specific industries, we find that excess cash has less adverse influence for the companies in the energy sector. (Less)
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author
Chen, Zeyuan and Li, Yan
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Excess Cash, Market Share, Debt to Equity Ratio, Subprime Mortgage Crisis, Management of enterprises, Företagsledning, management
language
Swedish
id
2369864
date added to LUP
2011-06-03
date last changed
2012-04-02 19:02:47
@misc{2369864,
  abstract     = {Not long ago large cash holding in balance sheet would not be recommended. As we know, large cash in hand means the companies less invest in new projects and extend their business. However, the recent research reveals that U.S companies hold more cash than before, and the financial strength might have strong relationship with the performance. Especially during the financial crises, those who reserve more cash flow take great advantage of the flexibility compared with their competitors, since many of them avoid cash squeeze. It is noticed that after the crises U.S. firms held more cash than they did before. Furthermore financial flexibility became more important in managers’ mind (Thomas, Kathleen et al., 2009). Our paper will explain the importance of the cash policy in a company and reveal the effect of cash holding on the performance of the company. Here return on asset (ROA) and market share are considered as indicators of the firm’s performance. We put our focus on the different cash policies in the companies among different industries. In this paper, we choose American companies as representatives. The OLS models are built based on the U.S companies’ data during 1988 to 2009. The main finding is that more excess cash will result in worse performance in product market. Moreover, companies with sufficient cash in hand tend to have lower return on assets, due to the negative NPV effects of excess cash and agency cost. During the financial crisis the adverse effect of cash is mitigated. Through investigating the performance among same specific industries, we find that excess cash has less adverse influence for the companies in the energy sector.},
  author       = {Chen, Zeyuan and Li, Yan},
  keyword      = {Excess Cash,Market Share,Debt to Equity Ratio,Subprime Mortgage Crisis,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {Cash In Hand And Corporate Performance},
  year         = {2011},
}