Abstract
Purpose This paper aims to examine the relationship between cash holdings (CH) and expected equity return in a sample of firms of Pacific alliance countries. Design/methodology/approach This paper constructed a panel of Pacific alliance firms for the period ranging from 2010 to 2016. This paper estimated different specification models using multivariate regression, and the statistical technique used to validate the hypothesis was panel data. Findings Results showed that there is a positive relationship between CH and expected equity return (r). The relationship between CH and systematic risk (ß) was estimated and this paper found a positive and statistically significant association. Findings suggest that corporate liquidity contains underlying information that contributes to explain the expected equity return, which, if ignored, can produce quite misleading results. Originality/value The results of this study have both academic and practical implications. First, the findings of the research contribute to a better understanding of the asset pricing models in emerging countries. On the other hand, the results obtained in this study can serve shareholders to make better estimations of the expected equity return, so investors can improve the risk-return trade-off due to the model allow a better estimation of the risk-return relation.
Highlights
After the financial crisis of 2008, both academics and professionals have focused their attention on the cash holdings of firms as these are thought to affect the investment prospects, the risk, and the expected profitability of the stocks in the future (Rao et al, 2013)
The expected equity returns for the most liquids firms were 0.012% while for those located in the lowest percentile that is those with the lowest cash holding, this average was situated in 0.004%, which represents a significant difference in financial terms. These results provided additional empirical evidence to support H1a; firms with higher cash holdings tend to have higher expected equity returns and higher volatility in their cash flows. This positive association between cash holdings and cash flow volatility provides support to the fact that firms hold on to cash for precautionary motive, firms that have higher cash holdings, have higher volatility cash flows and higher expected equity return
This paper explores the relationship between cash holdings and expected equity return
Summary
After the financial crisis of 2008, both academics and professionals have focused their attention on the cash holdings of firms as these are thought to affect the investment prospects, the risk, and the expected profitability of the stocks in the future (Rao et al, 2013). While there are studies on the determinants of cash holdings, as well as studies. © Judith Vergara Garavito and Sergio J. Published in Journal of Economics, Finance and Administrative Science. The full terms of this licence maybe seen at http://creativecommons.org/licences/by/4.0/legalcode
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Journal of Economics, Finance and Administrative Science
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
