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Excess Cash Holdings, Stock Returns, and Investment Organicity: Evidence from UK Investment Announcements

Jones, Edward; Li, Hao; Adamolekun, Oluwagbenga


Edward Jones

Hao Li


This paper examines whether the market reaction to investment announcements is conditional on company excess cash holdings. Cash may convey significant price-relevant information about the future cash flows and strategic direction of a company. Using a sample of 4,256 corporate investment announcements by firms listed on the London Stock Exchange over the period 2005–2019, we show that market reactions to new company investment announcements are higher for firms with excess cash holdings. Furthermore, we provide evidence on the relationship between excess cash holdings and market valuation of various investment classes. The results reveal that organic investments are valued more highly by the market than inorganic investments, and the positive impact of excess cash holdings is more pronounced for the set of organic investment decisions, particularly product launches and R&D. Lastly, we evaluate how the motive for holding cash affects the market perception of excess cash holdings. The market views excess cash holdings as positive when cash is held as a result of high exposure to risk, high debt capacity, and high bid–ask spread. Market perception of excess cash holdings reverses from negative before to positive after the global financial crisis.


Jones, E., Li, H., & Adamolekun, O. (2022). Excess Cash Holdings, Stock Returns, and Investment Organicity: Evidence from UK Investment Announcements. Abacus, 58(4), 603-647.

Journal Article Type Article
Acceptance Date Aug 9, 2022
Online Publication Date Dec 2, 2022
Publication Date 2022-12
Deposit Date Dec 3, 2022
Publicly Available Date Dec 5, 2022
Journal Abacus
Print ISSN 0001-3072
Electronic ISSN 1467-6281
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 58
Issue 4
Pages 603-647
Keywords Cash, Cash holdings, Motives for cash holdings, Corporate investment, Organic investment, Inorganic investment, Managerial entrenchment, R&D, Event study, Market perception,
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