Firm Value, Cash Holdings and Information Asymmetry

This study examines two conflicting hypotheses. First, based on Myers and Majluf (1984), cash holdings in combination with a higher level of information asymmetry have a positive influence on firm value because the adverse selection costs arising from external finance can be avoided. Second, Jensen&...

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Autores principales:	Saeed Ghorbani, Mojtaba Adili
Formato:	article
Lenguaje:	FA
Publicado:	Shahid Bahonar University of Kerman 2012
Materias:	firm value cash holdings information asymmetry agency costs Accounting. Bookkeeping HF5601-5689
Acceso en línea:	https://doaj.org/article/0cb9f407e32e4d7fad9b068990d5b5ed
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spelling	oai:doaj.org-article:0cb9f407e32e4d7fad9b068990d5b5ed2021-11-04T19:42:04ZFirm Value, Cash Holdings and Information Asymmetry2008-89142476-292X10.22103/jak.2012.7https://doaj.org/article/0cb9f407e32e4d7fad9b068990d5b5ed2012-01-01T00:00:00Zhttps://jak.uk.ac.ir/article_7_ad979d73b7d0fb01d229fdf0016a440b.pdfhttps://doaj.org/toc/2008-8914https://doaj.org/toc/2476-292XThis study examines two conflicting hypotheses. First, based on Myers and Majluf (1984), cash holdings in combination with a higher level of information asymmetry have a positive influence on firm value because the adverse selection costs arising from external finance can be avoided. Second, Jensen's free cash flow theory coupled with a higher level of information asymmetry leads to extreme moral hazard. Instead of paying out the free cash flow to shareholders, managers tend to waste these funds on inefficient investments or on their own pet projects. This study examines the relationship between cash holdings and firm value under information asymmetry assumption. The sample data consists of financial reports of the companies listed in Tehran Stock Exchange (TSE). The data is selected from 105 companies from 1382-1387, using panel data and Least Squares method for coefficients estimation and hypotheses testing. The results show that there is a significant and negative relationship between cash holdings and firm value, holding information asymmetry assumption. The results indicate that agency costs based on the theory of free cash flow outweigh the benefits of financial slack in mitigating adverse selection costs when raising external funds.Saeed GhorbaniMojtaba AdiliShahid Bahonar University of Kermanarticlefirm valuecash holdingsinformation asymmetryagency costsAccounting. BookkeepingHF5601-5689FAمجله دانش حسابداری, Vol 3, Iss 8, Pp 131-149 (2012)
institution	DOAJ
collection	DOAJ
language	FA
topic	firm value cash holdings information asymmetry agency costs Accounting. Bookkeeping HF5601-5689
spellingShingle	firm value cash holdings information asymmetry agency costs Accounting. Bookkeeping HF5601-5689 Saeed Ghorbani Mojtaba Adili Firm Value, Cash Holdings and Information Asymmetry
description	This study examines two conflicting hypotheses. First, based on Myers and Majluf (1984), cash holdings in combination with a higher level of information asymmetry have a positive influence on firm value because the adverse selection costs arising from external finance can be avoided. Second, Jensen's free cash flow theory coupled with a higher level of information asymmetry leads to extreme moral hazard. Instead of paying out the free cash flow to shareholders, managers tend to waste these funds on inefficient investments or on their own pet projects. This study examines the relationship between cash holdings and firm value under information asymmetry assumption. The sample data consists of financial reports of the companies listed in Tehran Stock Exchange (TSE). The data is selected from 105 companies from 1382-1387, using panel data and Least Squares method for coefficients estimation and hypotheses testing. The results show that there is a significant and negative relationship between cash holdings and firm value, holding information asymmetry assumption. The results indicate that agency costs based on the theory of free cash flow outweigh the benefits of financial slack in mitigating adverse selection costs when raising external funds.
format	article
author	Saeed Ghorbani Mojtaba Adili
author_facet	Saeed Ghorbani Mojtaba Adili
author_sort	Saeed Ghorbani
title	Firm Value, Cash Holdings and Information Asymmetry
title_short	Firm Value, Cash Holdings and Information Asymmetry
title_full	Firm Value, Cash Holdings and Information Asymmetry
title_fullStr	Firm Value, Cash Holdings and Information Asymmetry
title_full_unstemmed	Firm Value, Cash Holdings and Information Asymmetry
title_sort	firm value, cash holdings and information asymmetry
publisher	Shahid Bahonar University of Kerman
publishDate	2012
url	https://doaj.org/article/0cb9f407e32e4d7fad9b068990d5b5ed
work_keys_str_mv	AT saeedghorbani firmvaluecashholdingsandinformationasymmetry AT mojtabaadili firmvaluecashholdingsandinformationasymmetry
_version_	1718444631882989568

Firm Value, Cash Holdings and Information Asymmetry

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