We acknowledge useful comments received from the seminar participants at the University of Melbourne, the University of New South Wales, the University of Technology Sydney, and the anonymous reviewer.
Excess cash holdings and shareholder value
Article first published online: 28 JUL 2010
© 2010 The Authors. Accounting and Finance © 2010 AFAANZ
Accounting & Finance
Volume 51, Issue 2, pages 549–574, June 2011
How to Cite
Lee, E. and Powell, R. (2011), Excess cash holdings and shareholder value. Accounting & Finance, 51: 549–574. doi: 10.1111/j.1467-629X.2010.00359.x
- Issue published online: 2 MAY 2011
- Article first published online: 28 JUL 2010
- Received 21 July 2009; accepted 22 March 2010 by Robert Faff (Editor).
- Transactions cost;
- Stock performance;
- Marginal value of cash;
We examine the determinants of corporate cash holdings in Australia and the impact on shareholder wealth of holding excess cash. Our results show that a trade-off model best explains the level of a firm’s cash holdings in Australia. We find that ‘transitory’ excess cash firms earn significantly higher risk-adjusted returns compared to ‘persistent’ excess cash firms, suggesting that the market penalises firms that hoard cash. The marginal value of cash also declines with larger cash balances, and the longer firms hold on to excess cash. The results are consistent with agency costs associated with persistence in excess cash holdings.