The market value of cash holdings from related-party sales: The role of source of cash flows

Sun Moon Jung, Taejin Jung, Natalie Kyung Won Kim, Sohee Park

Research output: Contribution to journalArticlepeer-review

Abstract

This paper finds that investors evaluate cash holdings differently based on the source of cash flows. Using cash flows from related-party sales as a proxy for diverse sources, we find that shareholders discount the value of cash holdings for firms with higher cash flows from related-party sales. We find that firms use related-party sales cash flows differently; cash flows from related-party sales are more likely to be retained as internal cash reserves or distributed as dividends, rather than utilised for necessary investments. We further document a negative valuation of investments for firms with more related-party sales.

Original languageEnglish
Pages (from-to)2915-2948
Number of pages34
JournalAccounting and Finance
Volume64
Issue number3
DOIs
StatePublished - Sep 2024

Keywords

  • corporate governance
  • market value of cash holdings
  • related-party transactions
  • resource allocation
  • source of cash flows

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