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Measuring the Value of Corporate Cash Holdings against Predictable and Unpredictable Negative Shocks

Author

Listed:
  • Kohei Aono

    (College of Economics, Ritsumeikan University)

  • Keiichi Hori

    (School of Economics, Kwansei Gakuin University)

Abstract

This paper explores how cash mitigates predictable and unpredictable adverse cash flow shocks to firms using the financial data of Japanese firms. We find that (i) cash has no value after the predicted shock regardless of the severity of the financial constraint, (ii) after the unpredicted shock, the value of cash for the financially constrained firms is larger than that for the unconstrained firms, and (iii) the value of cash is similar between the two shocks for the unconstrained firms, while the value is larger when the unpredicted shock occurs than when the predicted shock occurs for the constrained firms.

Suggested Citation

  • Kohei Aono & Keiichi Hori, 2020. "Measuring the Value of Corporate Cash Holdings against Predictable and Unpredictable Negative Shocks," Discussion Paper Series 214-2, School of Economics, Kwansei Gakuin University, revised Apr 2021.
    • Handle: RePEc:kgu:wpaper:214-2
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    consumption tax hike; COVID-19; cash holdings; financial constraint; event study.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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