Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm
The corporate cash holdings are important when deciding performance and profitability of firms, and also as an extension to shareholders’ wealth. The issue of the amount of cash holdings in firms does not solely impact the firms’ balance sheets and agency costs. This study argues that the need for h...
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| Format: | Article |
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Human Resource Management Academic Research Society
2020
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| _version_ | 1825952191805915136 |
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| author | Soh, Wei Ni Mohd Ashhari, Zariyawati Muhamad, Haslinah |
| author_facet | Soh, Wei Ni Mohd Ashhari, Zariyawati Muhamad, Haslinah |
| author_sort | Soh, Wei Ni |
| collection | UPM |
| description | The corporate cash holdings are important when deciding performance and profitability of firms, and also as an extension to shareholders’ wealth. The issue of the amount of cash holdings in firms does not solely impact the firms’ balance sheets and agency costs. This study argues that the need for holding more cash to reduce default probability is relatively more significant, and should be focused upon rather than agency cost. To compare the agency cost and the value of holing more cash in firm, this study employs the Faulkender & Wang (2006) methodology in estimating the cash value against excess stock returns, which reflects shareholders’ valuation. As the findings, firms with higher cash would generate higher excess stock returns. The shareholders’ valuation does not tally with agency cost, showing that shareholders prefer firms to hold less cash. Furthermore, the optimal cash level is not significantly related with shareholders’ valuation. |
| first_indexed | 2024-03-06T10:41:17Z |
| format | Article |
| id | upm.eprints-85806 |
| institution | Universiti Putra Malaysia |
| last_indexed | 2024-03-06T10:41:17Z |
| publishDate | 2020 |
| publisher | Human Resource Management Academic Research Society |
| record_format | dspace |
| spelling | upm.eprints-858062023-09-18T03:03:18Z http://psasir.upm.edu.my/id/eprint/85806/ Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm Soh, Wei Ni Mohd Ashhari, Zariyawati Muhamad, Haslinah The corporate cash holdings are important when deciding performance and profitability of firms, and also as an extension to shareholders’ wealth. The issue of the amount of cash holdings in firms does not solely impact the firms’ balance sheets and agency costs. This study argues that the need for holding more cash to reduce default probability is relatively more significant, and should be focused upon rather than agency cost. To compare the agency cost and the value of holing more cash in firm, this study employs the Faulkender & Wang (2006) methodology in estimating the cash value against excess stock returns, which reflects shareholders’ valuation. As the findings, firms with higher cash would generate higher excess stock returns. The shareholders’ valuation does not tally with agency cost, showing that shareholders prefer firms to hold less cash. Furthermore, the optimal cash level is not significantly related with shareholders’ valuation. Human Resource Management Academic Research Society 2020 Article PeerReviewed Soh, Wei Ni and Mohd Ashhari, Zariyawati and Muhamad, Haslinah (2020) Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm. International Journal of Academic Research in Business and Social Sciences, 10 (8). 897 - 884. ISSN 2222-6990 https://hrmars.com/index.php/IJARBSS/article/view/7643/Shareholder-Valuation-on-a-Dollar-of-Cash-Versus-Agency-Cost-Evidence-from-High-cash-and-Low-Cash-Level-Firm 10.6007/IJARBSS/v10-i8/7643 |
| spellingShingle | Soh, Wei Ni Mohd Ashhari, Zariyawati Muhamad, Haslinah Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm |
| title | Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm |
| title_full | Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm |
| title_fullStr | Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm |
| title_full_unstemmed | Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm |
| title_short | Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm |
| title_sort | shareholder valuation on a dollar of cash versus agency cost evidence from high cash and low cash level firm |
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