Cash Holding, Firm Value and Performance under Financial Constraint: A Case Study of the Iranian Capital Market

The present study was conducted to gather evidence to investigate the relationship between cash holdings, firm value and financial performance of companies' constraints in financing the Iranian capital market.

For this purpose, this study was investigated for 91 companies (number of observations 728) in the period of 8 years between 2012 and 2019. Also, panel data regression was used to test the relationships between variables.

The results indicate that there is a nonlinear relationship between cash holdings and performance and this relationship is inverted U-shaped, also this relationship has existed with the performance variable (ROE) as an alternative variable. This study shows a negative relationship between the non-optimal level of cash holdings and financial performance. The results indicate that companies with financial constraints hold cash holdings, which will reduce financial performance.

Provides evidence of a non-linear relationship between firm performance and cash holdings under company-specific conditions (financial constraints). This evidence gives managers and investors the insight to examine the performance of companies and their future value, and how they make decisions in certain circumstances, such as financial constraints for companies.