Analyst Expertise and the Value of Cash Holdings

24 Pages Posted: 8 Nov 2018

See all articles by Louise Yi Lu

Louise Yi Lu

Australian National University

Ava Wu

The University of Sydney

Date Written: October/November 2018

Abstract

This study investigates whether analyst expertise mitigates the value destruction associated with an increase in cash holdings. We find that analyst expertise increases the marginal value of cash holdings, and that this effect is more pronounced for firms in an environment where analysts’ forecasts are more dispersed and for firms with weaker monitoring from institutional shareholders. Overall, our results are consistent with our conjecture that analyst expertise enhances external monitoring, thereby preventing potential misuse of cash holdings and the associated destruction of cash value.

Keywords: analyst expertise, monitoring, value of cash holdings

Suggested Citation

Lu, Louise Yi and Wu, Ava, Analyst Expertise and the Value of Cash Holdings (October/November 2018). Journal of Business Finance & Accounting, Vol. 45, Issue 9-10, pp. 1352-1375, 2018, Available at SSRN: https://ssrn.com/abstract=3280477 or http://dx.doi.org/10.1111/jbfa.12356

Louise Yi Lu (Contact Author)

Australian National University ( email )

Ava Wu

The University of Sydney

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