Abstract
I add cash holdings into an investment-based model of stock returns. I motivate cash holdings via costly outside financing. The model shows a relation between stock returns and cash holdings and provides a structural foundation for estimating the value of cash holdings from regressions. I estimate the model at the firm level—a task notoriously difficult for q theoretic models. Adding cash into the model substantially improves model fit on average, and accounting for costly investment and financing help improve fit across firms.
Original language | English |
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Pages (from-to) | 1149-1174 |
Number of pages | 26 |
Journal | Accounting & Finance |
Volume | 60 |
Issue number | S1 |
DOIs | |
Publication status | Published - Apr 2020 |
Keywords
- cash holdings
- q theory
- stock returns