Excess Cash holdings and Future Cumulative Abnormal Returns

Present study investigates the relationship between excess cash holdings and future performance in 188 active accepted firms of Tehran Stock Exchange (TSE) during 2002-2011. In this study, first of all a regression model is used to determine the optimal level of cash holding, then positive deviation from optimal level of cash holding are applied as excess cash. Also regression model with panel data is used to investigate the relationship between excess cash holdings and future performance. In this paper, cumulative abnormal returns (CAR) variable is used as future performance indexe. The results indicate that there is a negative and significant relationship between excess cash holdings and future performance. It shows that companies which hold more cash than optimal cash will have lower investment returns.