Abstract

http://ssrn.com/abstract=2167060
 
 

References (24)



 
 

Footnotes (5)



 


 



Easy Come, Easy Go: Free Cash and Bad Investment Decisions


Igor Cunha


Nova School of Business and Economics

May 12, 2014


Abstract:     
I explore the information on the cash flow statement to separate cash that is internally generated (i.e., cash from operations) from the cash that is externally raised (i.e., cash from financing). Consistent with theories of the disciplinary effects of external financing, I find that the overspending evidence previously associated to all firms with large cash holdings is driven by firms with high cash reserves coming from operations. Firms that derive their cash holdings from financing activities are less likely to engage in empire-building acquisitions that destroy shareholder value. These firms also present higher returns to their share repurchases due to their commitment to reduce agency problems and their more conservative attitude toward cash management.

Number of Pages in PDF File: 58

Keywords: Cash Holdings, Merger and Acquisitions, Share Repurchase, Agency

JEL Classification: G30, G32, G34, G35

working papers series





Download This Paper

Date posted: October 25, 2012 ; Last revised: May 13, 2014

Suggested Citation

Cunha, Igor, Easy Come, Easy Go: Free Cash and Bad Investment Decisions (May 12, 2014). Available at SSRN: http://ssrn.com/abstract=2167060 or http://dx.doi.org/10.2139/ssrn.2167060

Contact Information

Igor Cunha (Contact Author)
Nova School of Business and Economics ( email )
Faculdade de Economia da UNL (NOVASBE)
Campus de Campolide
Lisbon, 1099-032
Portugal
+351 213801693 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 919
Downloads: 238
Download Rank: 75,590
References:  24
Footnotes:  5

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.376 seconds