What is a Dollar Worth? The Market Value of Cash Holdings

Audit Quality and the Market Value of Cash Holdings: The Case of Office-Level Auditor Industry Specialization

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-50903 ◽

2014 ◽

Vol 34 (2) ◽

pp. 27-57 ◽

Cited By ~ 13

Author(s):

Jeong-Bon Kim ◽

Jay Junghun Lee ◽

Jong Chool Park

Keyword(s):

Financial Reporting ◽

Firm Value ◽

Capital Investment ◽

Audit Quality ◽

Cash Holdings ◽

Market Value ◽

High Quality ◽

Value Of Cash ◽

Office Level ◽

Industry Specialist

SUMMARY This study investigates the monitoring role of high-quality auditors defined as office-level industry specialists in the stock market valuation of cash assets. We find that the market value of cash holdings is significantly higher for the client of an industry specialist auditor. The marginal value of cash is 34 cents higher for the client of a joint-industry specialist at both the national and city levels than for the client of a nonspecialist. We also find that cash holdings are more closely associated with capital investment and the market value of capital investment is significantly higher when the auditor is a joint-industry specialist. Moreover, we find that the value of cash increases significantly when the client changes its auditor to a joint-industry specialist. Our findings hold even after controlling for the client's governance efficacy and financial reporting quality. Our results provide new insight into the mechanism through which high-quality audits affect firm value: External audits facilitate shareholders' monitoring over managerial cash expenditures, thereby leading market participants to attach a higher value to cash holdings.

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Accounting Restatements and Corporate Cash Policy

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x17732654 ◽

2017 ◽

Vol 35 (2) ◽

pp. 290-317 ◽

Cited By ~ 2

Author(s):

Huili Chen ◽

Zhihong Chen ◽

Dan S. Dhaliwal ◽

Yuan Huang

Keyword(s):

Financial Reporting ◽

Cash Holdings ◽

Market Value ◽

Precautionary Savings ◽

Difference In Differences ◽

Accounting Restatements ◽

Pronounced Increase ◽

Corporate Decisions ◽

Value Of Cash ◽

Excess Cash

Using a difference-in-differences approach, we find that the cash holdings of firms increase significantly after announcements of irregularity-related restatements. The increase is larger for firms with a higher demand for precautionary savings and is smaller for firms with less pronounced increase in shareholder control after the restatements. Investments and repurchases of irregularity firms become more sensitive to excess cash after the restatements. In addition, we find that the market value of cash holdings increases after restatements. Overall, the evidence suggests that strengthened shareholder control reduces cash holdings, but this effect is weaker than the increase in cash holdings due to exacerbated precautionary savings concerns. Our study contributes to the literature on the effect of financial reporting credibility on real corporate decisions.

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Financial Statement Comparability and the Market Value of Cash Holdings

Accounting Horizons ◽

10.2308/horizons-18-008 ◽

2020 ◽

Vol 34 (3) ◽

pp. 1-21

Author(s):

Hyejin Ahn ◽

Sunhwa Choi ◽

Sunho Chris Yun

Keyword(s):

Flow Problem ◽

Cash Holdings ◽

Market Value ◽

Financial Statements ◽

Free Cash Flow ◽

Financial Statement ◽

Marginal Value ◽

Cent Increase ◽

Value Of Cash ◽

Industry Peers

SYNOPSIS We examine how financial statement comparability affects the market value of cash holdings. Using a sample of U.S. firms from 1991 through 2013, we find that the marginal value of cash holdings is higher for firms with financial statements that are more comparable to those of their industry peers. Specifically, a change in our comparability measure from the bottom to the top decile is associated with a 37 to 43 cent increase in the market value of an additional dollar of cash. This result suggests that financial statement comparability mitigates the agency problem associated with cash holdings (i.e., the free cash flow problem) by improving firms' information environments and thus facilitating monitoring of managers.

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State ownership and value of cash: new evidence from an emerging market

International Journal of Emerging Markets ◽

10.1108/ijoem-02-2020-0196 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Quoc Trung Tran

Keyword(s):

Emerging Market ◽

Cash Holdings ◽

Market Value ◽

Budget Constraint ◽

State Ownership ◽

High State ◽

Soft Budget Constraint ◽

Content Type ◽

Value Of Cash ◽

New Evidence

PurposeThe purpose of this paper is to examine how state ownership influences value of cash in an institutional environment supporting soft-budget constraint.Design/methodology/approachThis study employs an interaction between state ownership and excess cash to examine how state ownership affects value of cash holdings based on Fama and French’s (1998) valuation model.FindingsWith a research data of 3,294 observations from 548 firms over the period 2009–2016, the authors find that state ownership is positively related to market value of cash. Moreover, this relationship is weaker in financially constrained firms.Originality/valueAlthough prior studies document a consistently negative effect of state ownership on market value of cash holdings, the authors argue that this effect may still be opposite. When managers of high state ownership firms rely on soft-budget constraint and save less cash, outside investors with this information disadvantage may focus more on precautionary motive and transaction motive than agency costs of cash holdings. As a result, value of cash holdings in high state ownership firms is higher. This paper contributes to the literature on corporate liquidity policy in emerging markets with new evidence on the role of state ownership in market value of cash holdings.

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Cash regimes and the franchise system: An extension of the marginal value of cash

Tourism Economics ◽

10.1177/1354816618797865 ◽

2018 ◽

Vol 25 (2) ◽

pp. 235-252 ◽

Cited By ~ 1

Author(s):

Kwangmin Park ◽

SooCheong (Shawn) Jang

Keyword(s):

Cash Holdings ◽

Market Value ◽

Restaurant Industry ◽

Debt Financing ◽

Annual Reports ◽

Franchise System ◽

Marginal Value ◽

Value Of Cash ◽

Restaurant Firms

The main purpose of this study is to examine the marginal value of cash in franchise restaurants by extending Faulkender and Wang’s three cash regimes into the franchise framework. Utilizing theoretical underpinnings from prior studies, this study attempted to verify that franchising is a quasi-debt financing tool for restaurant firms. The sample used in this study was retrieved from Compustat and 10-K annual reports from 1980 to 2015. The results of this study revealed that “raising cash” and “servicing debt” regimes are common in the restaurant industry. This study also found that shareholders place a lower value on the marginal value of cash for franchise restaurants compared with non-franchise restaurants. Furthermore, the market value of additional cash for franchise restaurants decreased when the proportion of franchise sales increased. This study confirmed Norton’s argument that franchising funds are not simply cheap capital. Furthermore, this study found that the value of cash holdings decreased for franchise restaurants based on the level of franchising operations.

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