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Abstract
This study contrasts the effect of cash holding on firm value for a sample of US industrial firms during 2001–2007. The study tests empirically for the existence of an optimal cash level that maximizes firm value. Second, the study analyses whether or not deviations from the optimum cash level reduce firm value. The results show a concave relation between cash holding and firm value, verifying the existence of an optimum level of cash holding. Additionally consistent with the initial analysis, deviations above and below optimal cash holding decreases the firm value.
Acknowledgements
This research is part of the Project ECO2008-06179/ECON financed by the Research Agency of the Spanish government. We also acknowledge financial support from Fundación Séneca – Science and Technology Agency from Region of Murcia (Spain) – (Program: PCTIRM 11–14). The authors also acknowledge support from Fundación CajaMurcia. A version of this work has previously been published as Working Paper No. 503 of the Working Papers Collection of the Foundation of Savings Banks (FUNCAS).