Investigation of the Impact of Cash Holding and Working Capital Management on Excess Return of

Abstract

Short term financial decisions such as cash holding and working capital management may affect firm’s value in the long term. The purpose of this study is to provide help for managers to know the importance of cash holding and management of working capital to choose the best financial decisions. Also, understanding the relationship between cash holding and working capital management on Excess Return are important for investors to choose the best investments. This paper takes a sample of firms listed in Tehran Stock Exchange to investigate the relationship between cash holding and working capital management on Excess Return. In this study 84 companies during 1385 to 1389 were selected and the panel data analysis was carried on. The results show that there are significant relationships between cash holding and working capital management with Excess Return, regarding the effects of the last year cash holding and working capital on the current year cash holding and working capital, and the leverage affects on them. The finding shows the importance of the short term financial decision on Excess Return in emerging market, and because of the financial constraints, the relationships between cash holding and working capital management with Excess Return are positive.

Keywords

• cash holding
• working capital
• firm value
• excess return