Cash Holdings and Firm Value: A Study of Listed Firms in Romania

Abstract

High level of cash holding can be appealing for investors as firms have enough cash to finance investments and also to pay dividends. On the other hand, keeping large amount of cash, firms are signaling that they are not able to invest and to develop their businesses. As a consequence, firm value will decrease. The aim of the paper is to test whether cash holdings increase firm value on a sample of Romanian listed firms over the period 2001-2011. Employing a fixed effects model, we found that cash holdings influence negatively firm value after controlling for other firm-specific variables. Our results are useful for managers and also for existing and potential investors in decision making process.

Keywords

• cash holdings
• firm value
• Romania
• listed firms