آیا پول نقدی پادشاه است؟ عملکرد بازار و پول نقدی در طی رکود اقتصادی  Is cash king? Market performance and cash during a recession

1. Introduction Holding cash has both benefits and costs. Depending on the theoretical lens used, cash holdings are either positively or negatively related to performance. On one hand, cash increases flexibility in strategic response and provides deterrence (Haushalter, Klasa, & Maxwell, 2007). When external financing is too costly, cash allows firms to invest in opportunities and reduces the risk of underinvesting in strategic opportunities (Garvey, 1992). On the other hand, excess cash leads to overinvesting in less profitable opportunities (Richardson, 2006), increases entrenchment (Jensen, 1986; Shleifer & Vishny, 1989), and results in poor governance (Kalcheva & Lins, 2007). More recently, Kim and Bettis (2014) found that Tobin’s Q, a proxy for market performance, has an inverted-U type relationship with cash holdings, with the inflection point at very high levels of cash holdings (.89 of total assets). Prior literature, however, has largely examined the cash– performance relationship during stable economic conditions. The decision to hold or use cash is particularly salient during a recession given increasing calls on firms to expend accumulated cash (Gulati, Nohria, & Wohlgezogen, 2010). Economic crisis brings both threats and opportunities, creating a dilemma for managers to either hold cash to buffer against threats or to expend cash to exploit emerging opportunities. Recent work has argued that firms making strategic investments during a recession improve their financial performance and emerge stronger out of the recession (Gulati et al., 2010). However, holding cash during a recession could also allow a firm to remain flexible, limit risk-taking in the face of an uncertain and unpredictable environment, and hold cash as a potential strategic deterrent. These facts beg the question: Does the stock market value cash holdings during a recession? Given the benefits and costs of holding cash during a recession, we examine the quadratic relationship between cash and market performance during a period of recession. Answering this research question is particularly relevant given that corporations were holding $5 trillion in cash at the beginning of 2014, six years after the Great Recession of 2008 (Woodhill, 2014). Our study contributes to interdisciplinary streams of literature in both strategy and finance on the cash and market performance relationship.