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Excess Cash and Stock Returns


  • Mikhail Simutin


"I document a positive relationship between corporate excess cash holdings and future stock returns. The difference in returns of portfolios of high and low excess cash firms amounts to 5% annually or 6% after standard three-factor risk adjustment. Firms with more excess cash have higher market betas and earn lower returns during market downturns. High excess cash companies invest considerably more in the future than do their low cash peers, but do not experience stronger future profitability. On the whole, this evidence is consistent with the notion that excess cash holdings proxy for risky growth options." Copyright (c) 2010 Financial Management Association International..

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  • Mikhail Simutin, 2010. "Excess Cash and Stock Returns," Financial Management, Financial Management Association International, vol. 39(3), pages 1197-1222, September.
  • Handle: RePEc:bla:finmgt:v:39:y:2010:i:3:p:1197-1222

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    References listed on IDEAS

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    Cited by:

    1. Arnold, Marc, 2014. "Managerial cash use, default, and corporate financial policies," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 305-325.
    2. Berardino Palazzo, 2013. "Net leverage, risk, and credit spreads," 2013 Meeting Papers 436, Society for Economic Dynamics.
    3. Palazzo, Berardino, 2012. "Cash holdings, risk, and expected returns," Journal of Financial Economics, Elsevier, vol. 104(1), pages 162-185.
    4. Bessler, Wolfgang & Drobetz, Wolfgang & Haller, Rebekka & Meier, Iwan, 2013. "The international zero-leverage phenomenon," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 196-221.
    5. Mikhail Simutin & JessieJiaxu Wang & Lars Kuehn, 2014. "A Labor Capital Asset Pricing Model," 2014 Meeting Papers 695, Society for Economic Dynamics.
    6. Ebenezer Asem & Shamsul Alam, 2014. "Cash Hoards And Changes In Investors' Outlook," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(1), pages 119-137, February.
    7. Asem, Ebenezer & Alam, Shamsul, 2015. "Market movements and the excess cash theory," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 140-149.
    8. Elnahas, Ahmed M. & Hassan, M. Kabir & Ismail, Ghada M., 2017. "Religion and ratio analysis: Towards an Islamic corporate liquidity measure," Emerging Markets Review, Elsevier, vol. 30(C), pages 42-65.
    9. repec:kap:rqfnac:v:49:y:2017:i:3:d:10.1007_s11156-016-0606-9 is not listed on IDEAS
    10. David McLean, R., 2011. "Share issuance and cash savings," Journal of Financial Economics, Elsevier, vol. 99(3), pages 693-715, March.
    11. Chen, Jiun-Lin & Jia, Z. Tingting & Sun, Ping-Wen, 2016. "Real option component of cash holdings, business cycle, and stock returns," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 97-106.
    12. repec:eee:corfin:v:44:y:2017:i:c:p:126-148 is not listed on IDEAS

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