Financial constraints and the value of cash holdings

Zhang, Yuchi (2013) Financial constraints and the value of cash holdings. [Dissertation (University of Nottingham only)] (Unpublished)

[img] PDF - Registered users only - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Download (1MB)


Financial constraint is an important topic in corporate finance. Previous literatures do researches on how to do measurement on financial constraint and whether it has an impact on investment and cash holdings. The results of these articles indicate that financial constraints do have influence on cash holdings. This dissertation will analyze the association between cash holdings and the value of companies in financially constrained and unconstrained firms based on some existing conclusions. We need to check two problems. One is whether cash holdings more valuable in constrained companies, and the other one is why cash holdings more valuable in these companies.

A sample of 42276 firm-year observations from 2004 to 2011 in United State is used to do analysis. Financially constrained and unconstrained companies are divided by three measures, which are payout ratios, size and KZ index. By using univariate test, OLS regression, fixed effect, and two-step least squares in empirical researches, we can reach the following conclusions: In financially constrained companies cash holdings are more valuable. Larger amount of cash holdings can allow companies accept profitable investment projects, which can lead to higher excess stock return. So cash holdings have an impact on the value of firms via investment activities. For some financially constrained companies with higher hedging needs, they will reserve larger amount of cash, and the amount of cash are more valuable in financially constrained companies with stronger hedging needs than financially constrained companies with lower needs for hedging.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 07 Mar 2014 10:24
Last Modified: 03 Oct 2016 08:36

Actions (Archive Staff Only)

Edit View Edit View