Investigating the Relationship between the amount of Cash Held by Companies and Future Cumulative Abnormal Returns

Abstract

Stock companies decisions in relation with financial leverage are one of the most important decisions taken by corporate executives. Financial decisions not only affect the company’s future performance, but also affect the country’s macroeconomic performance. The current study was done to investigate the relationship between the amount of cash held by companies and future cumulative abnormal returns. In order to conduct the survey, 120 companies listed in Tehran Stock Exchange during 2004 to 2010 were analyzed. Analysis evidence based on panel data shows that the company’s future performance which represents the cumulative abnormal returns in the future indicates decreased future stock returns due to Excessive   cash which indicates that the market was not able to completely predict the effects of Excessive   cash in the current returns.