Comment in Journal of Management Scientific Reports
Every company needs to maintain a certain amount of liquid funds—cash—in order to carry out transactions in its day-to-day business. However, too much cash can also be an indication that a company no longer sees any investment opportunities. So how much cash should a company hold?
A pioneering study found a positive correlation between cash holdings and company value, albeit with decreasing marginal returns. A replication last year by Maximilian Theissen and Prof. Dr. Lorenz Graf-Vlachy and co-authors from WHU and Ivey Business School found increasing marginal returns. Other recent research found no relationship at all.
In a commentary in Journal of Management Scientific Reports, Prof. Dr. Lorenz Graf-Vlachy and Dr. Christopher Jung of Ivey Business School integrate recent methodological advances and re-analyze the relationship between cash and firm value. In their analyses they find—just like the first fundamental study—a positive correlation with increasing marginal returns. The commentary emphasizes the importance of replication studies, even if such studies may lead “back” to previously discarded results.
Read the entire study here: https://doi.org/10.1177/27550311241308263