Value of One Rials Cash Held by the Company from a Shareholder’s Perspective

Abstract

The Tradeoff Theory explain that there is always an optimum level of cash holding in the company, in contrast to other theories about how much cash is kept, such as the hierarchy of finance theory, believes that there is no optimal level for cash holding in the company. In this study, for the purpose of tradeoff theory test, we examine the deviation from the optimal level of cash holdings and value from shareholders' perspective. The data of this research includes 770 companies listed in Tehran Stock Exchange during the period of 2009-2015. To assess the theory of cash holing by the company, it was divided into two parts: (1) optimal level of cash holdings; (2) deviation from the optimal level of cash of the company. The results of the research show that when changes in cash holdings are such that cash are closing to optimal level. A one rial for shareholders is worth more than one rial (1.13 riyals), and vice versa when adding a riyal to the company's cash leads to away from the optimal level of cash, one added rial worth less than one riyal (0.97 rial) .Therefore, the results of this research are consistent with the theory of balance of cash holdings.

Keywords

• cash holdings
• hierarchical theory
• trade off theory