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Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm

The corporate cash holdings are important when deciding performance and profitability of firms, and also as an extension to shareholders’ wealth. The issue of the amount of cash holdings in firms does not solely impact the firms’ balance sheets and agency costs. This study argues that the need for h...

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Main Authors: Soh, Wei Ni, Mohd Ashhari, Zariyawati, Muhamad, Haslinah
Format: Article
Published: Human Resource Management Academic Research Society 2020
Online Access:http://psasir.upm.edu.my/id/eprint/85806/
https://hrmars.com/index.php/IJARBSS/article/view/7643/Shareholder-Valuation-on-a-Dollar-of-Cash-Versus-Agency-Cost-Evidence-from-High-cash-and-Low-Cash-Level-Firm
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spelling my.upm.eprints.858062023-09-18T03:03:18Z http://psasir.upm.edu.my/id/eprint/85806/ Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm Soh, Wei Ni Mohd Ashhari, Zariyawati Muhamad, Haslinah The corporate cash holdings are important when deciding performance and profitability of firms, and also as an extension to shareholders’ wealth. The issue of the amount of cash holdings in firms does not solely impact the firms’ balance sheets and agency costs. This study argues that the need for holding more cash to reduce default probability is relatively more significant, and should be focused upon rather than agency cost. To compare the agency cost and the value of holing more cash in firm, this study employs the Faulkender & Wang (2006) methodology in estimating the cash value against excess stock returns, which reflects shareholders’ valuation. As the findings, firms with higher cash would generate higher excess stock returns. The shareholders’ valuation does not tally with agency cost, showing that shareholders prefer firms to hold less cash. Furthermore, the optimal cash level is not significantly related with shareholders’ valuation. Human Resource Management Academic Research Society 2020 Article PeerReviewed Soh, Wei Ni and Mohd Ashhari, Zariyawati and Muhamad, Haslinah (2020) Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm. International Journal of Academic Research in Business and Social Sciences, 10 (8). 897 - 884. ISSN 2222-6990 https://hrmars.com/index.php/IJARBSS/article/view/7643/Shareholder-Valuation-on-a-Dollar-of-Cash-Versus-Agency-Cost-Evidence-from-High-cash-and-Low-Cash-Level-Firm 10.6007/IJARBSS/v10-i8/7643
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
description The corporate cash holdings are important when deciding performance and profitability of firms, and also as an extension to shareholders’ wealth. The issue of the amount of cash holdings in firms does not solely impact the firms’ balance sheets and agency costs. This study argues that the need for holding more cash to reduce default probability is relatively more significant, and should be focused upon rather than agency cost. To compare the agency cost and the value of holing more cash in firm, this study employs the Faulkender & Wang (2006) methodology in estimating the cash value against excess stock returns, which reflects shareholders’ valuation. As the findings, firms with higher cash would generate higher excess stock returns. The shareholders’ valuation does not tally with agency cost, showing that shareholders prefer firms to hold less cash. Furthermore, the optimal cash level is not significantly related with shareholders’ valuation.
format Article
author Soh, Wei Ni
Mohd Ashhari, Zariyawati
Muhamad, Haslinah
spellingShingle Soh, Wei Ni
Mohd Ashhari, Zariyawati
Muhamad, Haslinah
Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm
author_facet Soh, Wei Ni
Mohd Ashhari, Zariyawati
Muhamad, Haslinah
author_sort Soh, Wei Ni
title Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm
title_short Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm
title_full Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm
title_fullStr Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm
title_full_unstemmed Shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm
title_sort shareholder valuation on a dollar of cash versus agency cost: evidence from high-cash and low-cash level firm
publisher Human Resource Management Academic Research Society
publishDate 2020
url http://psasir.upm.edu.my/id/eprint/85806/
https://hrmars.com/index.php/IJARBSS/article/view/7643/Shareholder-Valuation-on-a-Dollar-of-Cash-Versus-Agency-Cost-Evidence-from-High-cash-and-Low-Cash-Level-Firm
_version_ 1781706645519204352
score 13.211869

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