Analysis of cash holding for measuring the efficiency of cash management: A study on IT sector

Somnath Das

doi:10.5267/j.msl.2014.12.008

Abstract

Article history: Received September 18, 2014 Accepted 15 December 2014 Available online December 16 2014 For measuring the efficiency of management of cash, cash holding is one of the most important financial decisions that the manager of the concerned organization, has to make in the organization. Basically, it is observed that the organization hold cash for future purposes is very negligible. If the organization invested cash in profitable securities then there is some flexibility but when it relates to the capital market holding cash is not advantageous. Generally two contradictory theories such as Trade-off theory and the Pecking order theory are considered for measuring the efficiency of cash management. In this study we generally observed measured the efficiency of Cash Management influenced by Cash Holding. We also measured whether cash holding of the organization is affected with the degree of financial leverage, size of the organization, investment and profitability. This study helps us to understand the influence of DFL, Investment and Size of the organization on Cash holding. Proper holding of cash in cash management can prevent the bankruptcy of any organization and also increases the efficiency of Cash or Liquidity management. Growing Science Ltd. All rights reserved. 5 © 201 Cash holding Cash management Trade off theory Pecking order theory

Highlights

For measuring the efficiency of Managing Cash, Cash Holding is one of the most important financial decisions that the manager of the concerned organization, has to make in the organization
It is observed that the organization hold cash for future purposes is very negligible
In this study we examined the relationship between average cash holding and Degree of financial leverage (DFL), average cash holding and Investment and average cash holding and profitability (RONW)

Summary

Introduction

For measuring the efficiency of Managing Cash, Cash Holding is one of the most important financial decisions that the manager of the concerned organization, has to make in the organization. How much Cash to hold is the question. These policies have been regarded one of the most important financial policies in the process of managing Cash in the companies. It is observed that the organization hold cash for future purposes is very negligible. Cash holding may be good if the firm invests it in any profitable securities (Keynes, 1936) or in contrary there may be agency problem (Jensen, 1986). Regarding investment in profitable securities cash gives some flexibility but when it relates to the capital market holding cash is not advantageous

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