Excess Cash and Stock Returns

By Mikhail Simutin. 2010

134 citations recorded by the source corpus.

I document a positive relationship between corporate excess cash holdings and future stock returns. The difference in returns of portfolios of high and low excess cash firms amounts to 5% annually or 6% after standard three-factor risk adjustment. Firms with more excess cash have higher market betas and earn lower returns during market downturns. High excess cash companies invest considerably more in the future than do their low cash peers, but do not experience stronger future profitability. On the whole, this evidence is consistent with the notion that excess cash holdings proxy for risky growth options.

Subfields: Accounting, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/246b6ab917ef876514f84f5df848a602f1fd1ba1

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In Accounting

1. David A. Matsa
2. Iwan Meier
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In Finance

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In Strategy and Management

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Citations in the corpus

• Cash Holdings and Credit Risk (2012, unknown): “14 Simutin (2010) also finds that firms with growth options hold more cash.”
• Why Do Firms Use High Discount Rates (2016, background): “Indeed, Simutin (2010) shows that firms with high cash balances invest more in the future and interprets excess cash holdings to be a proxy for risky growth options.”
• The international zero-leverage phenomenon (2013, unknown): “The observation that they also have higher cash reserves is also in line with Simutin’s (2010) finding that high excess cash firms invest considerably more in the future.”