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Excess Cash and Stock Returns

Financial Management, 2010, 39 (3), p. 1197-1222
2010
  • 4
    Citations
  • 7,042
    Usage
  • 4
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    4
    • Citation Indexes
      4
  • Usage
    7,042
    • Abstract Views
      5,828
    • Downloads
      1,214
  • Captures
    4
    • Readers
      3
      • SSRN
        3
    • Exports-Saves
      1
      • SSRN
        1
  • Ratings
    • Download Rank
      34,960

Paper Description

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.

Bibliographic Details

Mikhail Simutin

Cash holdings; stock returns; investment; growth options

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