Information asymmetry and the value of cash

Corporate Cash Holdings and Adjustment Behaviour in Chinese Firms: An empirical Analysis Using Generalized Method of Moments

“…Frictionless capital market assumption makes holding cash by firms irrelevant. But this assumption can be relaxed owing to modern trends in cash holdings (Drobetz et al, 2010). By considering transaction costs, agency problems and information asymmetry, the debate on corporate cash holdings features trade off theory and pecking order theory by Meyars(1984) and free cash flow hypothesis by Jensen (1986) very prominently.…”

Linear and Nonlinear Relationship between Inflation, Operating Cycle and Cash Holdings: Evidence from Iran

“…Caprio et al (2013) identified other cash holding expenses, among which are these: cash is an asset which can be easily abused and which is accessible easily by the top members of corporations; corporations which are located in the countries with high level of corruption tend to hold less cash, and they invest most of their cash in fixed assets in corporations that are located in countries with low level of corruption. Drobertz et al (2010) who investigated those factors affecting the corporations' cash balance, proved that both the corporations' tangible assets and the corporations' size have negative relationships with cash balance and also, there is a nonlinear relationship between leverage ratio and cash holding. Bates et al (2009) by surveying United states' firms between 1980 to 2004, found out that the cash average of these firms has risen considerably within those years and this rise has been more related to firms that have not paid their dividend regularly and the reason to this rise has been because of an increase in risk accepting of those firms.…”

Bank Cash Holdings and Investor Uncertainty

“…Such is the explanation advanced by Morgan (2002) for his observation that larger cash holdings increase bank opacity. In fact, outside of regulated industries, Drobetz et al (2010) show that investors discount cash holdings as information asymmetry increases. They conclude that when information asymmetry is significant, the agency costs of free cash flows exceed the benefits of maintaining large cash balances to finance new undertakings.…”

“…In fact, Drobetz et al (2010) observe that, in unregulated industries, the value of cash holdings is lower when information asymmetry is more significant. This paper assesses whether, and under what circumstances, cash holdings contribute to stockholder uncertainty.…”