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Cash management strategies and firm financial performance: A comprehensive literature review

Author

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  • Mustapher Faque

    (School of Business, Ibn Haldun University, Istanbul, Turkey)

Abstract

Cash(liquidity) management is at the heart of a firm’s financial management. It is a silver lining between the bankruptcy and the success story of a company. Therefore, this study intends to contribute some insights into cash management practices and how firms can use them to achieve sound financial performance. This study provides a comprehensive literature review on existing theories and cash management practices that are useful in decision making. After the analysis of the available literature, the study highlights important theories including tradeoff theory (TOT), transaction model, precautionary measures, financial hierarchy, and cash flow theory. Furthermore, management practices such as stochastic cash management model, speeding up cash collections, centralization & decentralization of management, asset portfolio diversification, and cash disbursement are discussed. The study suggests that a sound financial performance can be achieved through a hybrid approach and through adaptation and embracing innovations in cash management systems.

Suggested Citation

  • Mustapher Faque, 2020. "Cash management strategies and firm financial performance: A comprehensive literature review," Bussecon Review of Finance & Banking (2687-2501), Bussecon International, vol. 2(2), pages 36-43, April.
  • Handle: RePEc:adi:bsrfbs:v:2:y:2020:i:2:p:36-43
    DOI: 10.36096/brfb.v2i2.207
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    References listed on IDEAS

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    2. Ali Uyar & Cemil Kuzey, 2014. "Determinants of corporate cash holdings: evidence from the emerging market of Turkey," Applied Economics, Taylor & Francis Journals, vol. 46(9), pages 1035-1048, March.
    3. Gary E. Powell & H. Kent Baker, 2010. "Management Views on Corporate Cash Holdings," Discussion Paper Series 2010-01, McColl School of Business, Queens University of Charlotte.
    4. Raphael Amit & Joshua Livnat, 1988. "Diversification strategies, business cycles and economic performance," Strategic Management Journal, Wiley Blackwell, vol. 9(2), pages 99-110, March.
    5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    6. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
    7. Dittmar, Amy & Mahrt-Smith, Jan, 2007. "Corporate governance and the value of cash holdings," Journal of Financial Economics, Elsevier, vol. 83(3), pages 599-634, March.
    8. Naiwei Chen & Meiya Chang, 2013. "Financial Crisis and Corporate Liquidity: Implications for Emerging Markets," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 20(1), pages 1-30, March.
    9. Qingbin Cui & Makarand Hastak & Daniel Halpin, 2010. "Systems analysis of project cash flow management strategies," Construction Management and Economics, Taylor & Francis Journals, vol. 28(4), pages 361-376.
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