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Accruals quality and corporate cash holdings

Authors


  • The authors gratefully acknowledge the helpful comments and suggestions received during the review process. This research is part of the Projects SEJ2007-61450/ECON and ECO2008-06179/ECON, financed by the Research Agency of the Spanish government. The authors also acknowledge financial support from Fundación CajaMurcia.

Abstract

This Work Uses Panel Data For Firms Listed In The Spanish Stock Exchange Over The Period From 1995 To 2001 To Analyse The Effect Of Accounting Quality On Cash Holdings. The Results Show That Firms With Good Accruals Quality Hold Lower Cash Levels Than Firms With Poor Accruals Quality. This Finding Suggests That The Quality Of Accounting Information May Reduce The Negative Effects Of Information Asymmetries And Adverse Selection Costs, Allowing Firms To Reduce Their Level Of Corporate Cash Holdings. The Results Also Show That Cash Holdings Decrease When Firms Increase Their Use Of Bank Debt And In The Presence Of Cash Substitutes. In Contrast With This, Firms With Higher Cash Flow Hold Higher Levels Of Cash.

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