Accounting Quality and Corporate Cash Holdings

This work uses Teruel and Solano’s design for firms listed in the Tehran Stock Exchange over the period from 2000 to 2006 to analyze the effect of accounting quality on cash holdings. The results show that firms with good accruals quality hold lower cash levels than firms with poor accruals quality. This finding suggests that the quality of accounting information may reduce the negative effects of information asymmetries and adverse selection costs, allowing firms to reduce their level of corporate cash holdings. The results show that firms with higher growth hold higher levels of cash. In contrast with this, cash holdings decrease when firms increase cash substitutes, their leverage and dividend.