Abstract The paper investigates the relation between cash holdings and product market performance based on the predation theory. The paper proposes that for the average effect, firms holding more cash than their industry rivals expand their future performance in the product market, while for interval effect, the regression coefficients between product market performance and cash holdings show a gradually increasing trend with the increasing level of cash holdings. Furthermore, the empirical results show investment due to large cash reserves is the prime reason for the tendency of interval effect, and it also promotes corporate value ultimately. This paper also finds that the strategic effect of cash holdings is effected by industry competition intensity and industry financial status.
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Received: 13 September 2011
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