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A transaction cost perspective on why, how, and when cash impacts firm performance

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  • Jonathan P. O'Brien

    (Lally School of Management and Technology, Rensselaer Polytechnic Institute, Troy, NY, USA)

  • Timothy B. Folta
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    Abstract

    While both financial and behavioral theories suggest that cash holdings may be beneficial to R&D-intensive firms, agency theory would suggest that strong monitoring may be needed to ensure that cash holdings are not squandered. We contend that transaction cost economics provides a valuable lens for understanding the performance implications of cash holdings because not only does it explicate the benefits and costs of cash holdings in a single unified theoretical framework, but it further clarifies how environmental uncertainty critically moderates these relationships. Empirical tests on a large sample of US corporations yield strong support for our theory. Copyright © 2009 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1457
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 30 (2009)
    Issue (Month): 7 ()
    Pages: 465-479

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    Handle: RePEc:wly:mgtdec:v:30:y:2009:i:7:p:465-479

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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