Cash is surprisingly valuable as a strategic asset
Year: 2013
Type: article
Abstract: Academics, politicians, and journalists are often highly critical of U.S . firms for holding too much cash. Cash holdings are stockpiled free‐cash flow and incur substantial opportunity costs from the perspectives of economics. However, behavioral theory highlights the benefits of cash holdings as fungible slack resources facilitating adaptive advantages. We use the countervailing forces embodied in these two theories to hypothesize and test a quadratic functional relationship of returns to cash measured by T obin's q. We also build and test a related novel hypothesis of scale‐dependent returns to cash based on the competitive strategy concept of strategic deterrence. Tests for both of these hypotheses are positive and show that returns to cash continue to increase far beyond transactional needs . Copyright © 2013 John Wiley & Sons, Ltd.
Source: Strategic Management Journal
DOI: 10.1002/smj.2205
Authors: Changhyun Kim, Richard A. Bettis
Institution: University of North Carolina at Chapel Hill
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2143769017