The Managerial Ability and Value of Cash: Evidence from Iran

This study investigates empirically the value investors place in excess cash holding and how managerial ability impact on the value of cash holding for Iranian firms from 2006 to 2014. In this research, managerial ability calculated by using the data envelopment analysis (DEA). Following the approach of Faulkender and Wang, we find that the relation between managerial ability and value of cash holding and the level of cash is positive and significant. This result indicates that when managers allocate cash resources efficiently, shareholders consider more value for the firm cash holding. Also, the result shows that if managers emphasize both long-term and short-term of resource management, investors set a higher marginal value of cash holdings. In the other words, the able management can improve the value of cash holding by the focusing on the spending resource for both long and short-term periods.