earticle

영어

The literature shows that increases in cash holdings can increase firm value but the marginal value of cash decreases with the level of cash holdings. Increases in cash holdings may come from operation, investment, and financing activities and their implications to the value of cash holdings shall differ. This study examines the effects of cash sources on the value of cash holdings. Consistent with both of the trade-off motives and the agency theory of cash holdings, our results show that the decreased marginal value of cash holdings is significantly lowered when the additional cash comes from operating activities (CFO), indicating lower incentive to accumulate cash and potential higher agency problem concern from accumulating cash internally in profitable firms. On the contrary, the marginal value decrease is significantly mitigated when the additional cash comes from the investment activities (CFI) or financing activities (CFF), and the positive impact of CFF mainly comes from the equity-based financing, suggesting positive signal of managers’ confidence on future growth. In addition, investors value the cash higher if firms also payout cash dividend, except in low-levered firms. Overall, the agency explanation to the value of cash holdings is more pronounced in firms with higher capability of generating cash internally. For firms with better access to external financing for cash holdings, the value of cash holdings is highly determined by the economical rationales of holding large cash.