تاثیر کیفیت درآمد بر سرمایه گذاری اضافی نقدینگی شرکت و ارزش مرزی آنها Earnings Quality Effect on Corporate Excess Cash Holdings and Their Marginal Value

Introduction The accuracy of a firm’s financial reporting is a major determinant of information asymmetry. For example, Bushman and Smith (2001) and Verrecchia (2001) suggest that higher quality financial reporting mitigates the information asymmetry problems that cause economic friction, such as adverse selection and moral hazards. Accounting and finance literature frequently uses the quality of accounting earnings (hereafter, earnings quality) as a proxy for the accuracy of a firm’s financial reporting. Ball and Shivakumar (2008) argue that the accuracy of a firm’s financial reporting increases the earnings quality. Francis et al. (2005) report that higher earnings quality improves trust relationships among stakeholders and ameliorates the consequences of information asymmetry. On the other hand, poor earnings quality creates uncertainty about the financial health of the firm and gives rise to suspicions that the earnings may be managed. Firms with higher cash holdings are likely to be exposed to severe information asymmetry problems. Garcia-Teruel et al. (2009) state that information asymmetry is itself partially responsible for corporate cash holdings. A firm that is informatively opaque is more likely to accumulate cash holdings than is a firm that is informatively transparent. Firms with a high degree of information asymmetry have higher external financing costs. Such firms must rely more heavily on internal sources of funds, and must necessarily accumulate cash holdings for their operational and investment needs. Accordingly, firms with poor earnings quality accumulate higher cash holdings than do firms with good earnings quality.Easley and O’Hara (2004) suggest that information asymmetry adversely affects the cost of capital in the case of imperfect competition. Bhattacharya et al. (2003) and Francis et al. (2005) argue that poor earnings quality increases information asymmetry, which leads to a higher cost of capital. An increase in the cost of capital lowers the marginal value of excess cash holdings because it is the discount rate used to value assets. Drobetz et al. (2010) find that Jensen’s (1986) free cash flow theory predicts that excess cash holdings have a negative effect on their marginal value in states with moral hazard problems. We empirically analyze the effect of earnings quality on corporate excess cash holdings and their marginal value as follows. The sample firms are selected from those listed on the Korea Exchange from 2000 to 2014. We estimate the quality of three accruals as proxies for earnings quality and aggregate the three proxies into one aggregate score. Excess cash holdings are determined using the models of Opler, Pinkowitz, Stulz, and Williamson (hereafter, OPSW, 1999) and DeAngelo, DeAngelo, and Stulz (hereafter, DDS, 2010). The marginal value of excess cash holdings is determined following Dittmar and Mahrt-Smith (2007).