Asymmetric Cash Flow Sensitivity of Cash Holdings

This research documents the asymmetric corporate cash flow sensitivity of cashholdings. Using a sample of 630 firm-years (companies in Tehran Stock Exchange were selected for years 1384 to 1390) the corporate reactions to changes in their cash holdings in case of negative and positive cash flows were examined. For testing the hypothesisabout asymmetric cash flow sensitivity، Riddick and Whited (2009) models were used. Results show that firms have different level of responses to their cash holding when faces positive and negative cash flow: meaning that the relation between cash holding and positive cash flow is different than relation between cash holding and negative cash flow. We document that the cash flow sensitivity of cash flow is negative when a firm faces a positive cash flow environment، and the cash flow sensitivity of cash flow is positive when a firm faces negative cash flow. This asymmetry may be due to several reasons، including binding project contracts، bad news withholding and agency costs.