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Stock price reactions to corporate cash holdings in mitigating predictable and unpredictable negative shocks

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  • Aono, Kohei
  • Hori, Keiichi

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 had a positive impact on stock prices, and the impact was thoroughly reflected in stock prices before a predictable shock, (ii) after an 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 whereas the value is larger when the unpredicted shock occurs than when the predicted shock occurs for the constrained firms.

Suggested Citation

  • Aono, Kohei & Hori, Keiichi, 2023. "Stock price reactions to corporate cash holdings in mitigating predictable and unpredictable negative shocks," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x2300063x
    DOI: 10.1016/j.pacfin.2023.101997
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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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