Journal Screenshot

International Journal of Academic Research in Accounting, Finance and Management Sciences

Open Access Journal

ISSN: 2225-8329

Measuring Excess Cash Balance and Studying its Relationship with Stock Return in Companies Accepted in Tehran Stock Exchange

Zeinolabedin Sadeghi, Mojtaba Afshar Jahanshahi, Amin Kalantari Darranji

http://dx.doi.org/10.6007/IJARAFMS/v4-i1/657

Open access

Goal of cash management is to limit cash levels in the company and maximize stock return. Cash should be kept at a level which makes balance between cash holding cost and insufficient cash cost. The present research studied the relationship between characteristics of companies and their cash holding. Excess cash amount was measured using regression model and its relationship with stock return of companies was analyzed. Statistical population included the companies accepted in Tehran Stock Exchange from 2006 to 2011 and the statistical sample was 151 companies which were selected from among them. The research results indicated that companies with higher ratio of market value to book value and larger size held less cash reserves. It seems that the mentioned specification played a role in determining cash holding policies of companies and potentially prevented from cash accumulation in them. Also, the companies which earned cash flow resulting from higher operations had higher cash balance and excess cash holding reduced stock return of the companies; as a result, investors show undesirable reaction to excess cash.

Resaeian, A., Rahimi, F., and Hanjari, S. (2010). Effect of intra-organizational supervisory mechanisms of corporate governance on cash holding level in Tehran Stock Exchange. Journal of Financial Accounting Researches, 2nd year, No. 4, Serial no. 6.
Dariush, F., Ali, S., Amir, R., Sahar, Z. (2011). Effect of profit quality on cash holding in Tehran Stock Exchange, Journal of Planning and Budget, vol.16, No. 2.
Fakhari, H., and Taghavi, S. R. (2009). Accruals quality and cash balance, Accounting and Auditing Studies, vol. 16, No. 57.
Dittmar, A., Mahrt-Smith, J., and Servaes, H. (2003). International Corporate Governance and Corporate Cash Holdings, Journal of Financial and Quantitative Analysis, 38, 111–133.
Ferreira, M. A., and Vilela, A. (2004). “Why do firms hold cash? Evidence from EMU Countries”, European Financial Management, Vol. 10, No. 2, 295–319.
Faulkender, M., and Wang, R. (2006). Corporate financial policy and the value of cash, Journal of Finance 61, 1957.
Garcia-Teruel, P. J., Martinez-Solano, P., Sanchez-Ballesta, J. P. (2008). Accruals Quality and Corporate Cash Holdings, Journal of Accounting and Finance, Vol. 49, pp. 95–115.
Guney, Y., Ozkan, A., and Ozkan, N. (2007).” International evidence on the non-linear impact of leverage on corporate cash holdings”, Journal of Multinational Financial Management, Volume 17, Issue 1, February 2007, pp. 45-60.
Harford, J., Mansi, S. A., and William, F. M. (2008). Corporate Governance and Firm Cash Holdings, Journal of Financial Economics, Vol 87, pp. 535-555.
Lee, E., and Powell, R. (2010). “Excess Cash Holding and Shareholder Value”, University of New South Wales, Australia.
Tim, O., Lee, P., Rene, S. H., & Rohan, W. (1999). The Determinants and Implications of Corporate Cash Holdings, Journal of Financial Economics 52, 3-46.
Aydin, O., Neslihan, O. (2004). Corporate Cash Holdings: An Empirical Investigation of UK Companies, Journal of Banking & Finance, 28, 2103–2134.
Ramirez, A., Tadesse, S. (2009). ”Corporate cash holdings, uncertainty avoidance, and the multinationality of firms”, International Business Review, Volume 18, Issue 4, August 2009, pp. 387-403.
Lee, E., and Powell, R. (2010). “Excess Cash Holding and Shareholder Value”, University of New South Wales, Australia.

In-Text Citation: (Sadeghi et al., 2014)
To Cite this Article: Sadeghi, Z., Jahanshahi, M. A., & Darranji, A. K. (2014). Measuring Excess Cash Balance and Studying its Relationship with Stock Return in Companies Accepted in Tehran Stock Exchange. International Journal of Academic Research in Accounting Finance and Management Sciences. 4(1), 465 – 481.