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Cash Holdings, Financial Constraints and Firm Value: Test Based on the Threshold Regression Model |
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Abstract Based on the threshold regression model, this paper investigates whether the financial constraints inflence the relation between cash holdings or excessive cash holdings and firm value. The result indicates there are significant threshold effect on relation between cash holdings or excessive cash holdings and firm value. In the lower financial constraints firms, the market value of cash holdings or excessive cash holdings is less than their corresponding book value. But in another range, the market value of cash holdings or excessive cash holdings is more than their corresponding book value. The effect of excess cash on firm value is lower the effect of excess cash on firm value. This results are coincide with the theory of agency and the theory of financial constraints.
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Received: 21 October 2010
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