Abstract
What influence do external contingencies have on the strategic value of cash holdings? Employing a contingent perspective on resource-performance relationships, we test how the three dimensions of organizational task environments – environmental complexity, dynamism, and munificence – influence the strategic value of cash holdings. We argue that as versatile resources, cash holdings are most useful in complex and dynamic settings, as they facilitate strategic fit between firm and environment. By contrast, the value of cash is weakened in resource-rich environments, as the environment itself provides the resources for strategic fit. Results from our dynamic fixed-effects panel analyses support our theorizing, as they show that environmental complexity and dynamism strengthen the positive link between cash and performance, while environmental munificence attenuates it. We conclude that key environmental contingencies of a firm's organizational task environment indeed shape the cash-performance relationship.
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