Using a dynamic model of heterogeneous beliefs where investors agree to disagree, this paper shows: (i) beliefs may diverge, which prevents pessimists from providing liquidity. This prediction is supported by the analyst target price forecasts for ten major banks during the crisis since 2007; (ii) in the case that beliefs cross (i.e., pessimists become more optimistic than the initial optimists...

Using a customer–supplier matched sample of US-listed firms from 1980 to 2016, we study the corporate cash-holding relationship between suppliers and their major customers. The key findings suggest that levels are positively affected by those customers, consistent with liquidity argument. effects more pronounced when customers in favourable financial conditions they considered important supplie...

It is well accepted that aligning managerial incentives with those of stock holders enhances shareholder value. In theory models, such alignment is usually modeled as giving managers a stake in the realized cash flows of the firm’s projects. However, such a stake, which entails a manager holding on to her equity position until all cash flow uncertainty is resolved, can lead a risk averse manage...

aaccording to the trade-off theory, firm managers consider the transaction and precautionary motives to determine the optimal level of cash by comparing the benefits and costs of cash holdings. the purpose of this paper is to examine the impact of deviation from expected optimal cash on future stock returns among irans’s listed companies (tehran stock exchange). the analyses are performed by us...

Academics, politicians, and journalists are often highly critical of U.S. firms for holding too much cash. Cash holdings are stockpiled free-cash flow and incur substantial opportunity costs from the perspectives of economics. However, behavioral theory highlights the benefits of cash holdings as fungible slack resources facilitating adaptive advantages. We use the countervailing forces embodie...