Cash is surprisingly valuable as a strategic asset

Kim, Changhyun; Bettis, Richard A.

doi:10.1002/smj.2205

Cited by 147 publications

(248 citation statements)

References 56 publications

(84 reference statements)

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“…Firm size is found to be negatively related to Tobin's q , consistent with prior research (Welbourne and Andrews, ). Capital expenditures and sales growth are associated with higher performance, consistent with Kim and Bettis (). Also, profitability and potential slack are both positively associated with performance.…”

Section: Resultsmentioning

confidence: 99%

When is cash good or bad for firm performance?

Deb

Polizzi

O’Brien

2016

Strategic Management Journal

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Research summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. We synthesize arguments from the behavioral theory of the firm, economic perspectives like agency theory, and the value‐creation versus value‐appropriation literatures to argue that the implications of cash for firm performance are context‐specific. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Managerial summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. While cash‐rich firms have higher performance on average, with those in the 75th percentile having a market‐to‐book value 15 percent higher than those in the 25th percentile, we find that the performance benefits of cash depend on the context. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Copyright © 2015 John Wiley & Sons, Ltd.

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Section: Resultsmentioning

confidence: 99%

When is cash good or bad for firm performance?

Deb

Polizzi

O’Brien

2016

Strategic Management Journal

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“…Accounting measures are not optimal to measure post‐acquisition performance because acquirers are from many countries with inconsistent accounting practices (Carlson, ; Huang et al, ). In contrast, market‐based measures are comparable across countries due to the global integration of stock markets (Kim and Bettis, ; Zollo and Meier, ). We thus measured the post‐acquisition performance of an acquirer using Tobin’s q, a market‐based measure (Ellis et al, ; Huang et al, ; Kim and Bettis, ; Zollo and Meier, ).…”

Section: Methodsmentioning

confidence: 99%

Navigating the New Normal: Political Affinity and Multinationals’ Post‐Acquisition Performance

Hasija

Liou

Ellstrand

2019

J Management Studies

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The New Normal in the international business landscape reflects a world challenged by economic volatility and political hostilities. This suggests increased political risk, even for MNEs operating in developed markets. We use the legitimacy‐based view of political risk to examine how political affinity between host and home markets may contribute to an MNE’s post‐acquisition performance in a developed market. A high degree of political affinity signifies aligned national interests thus reducing legitimacy concerns faced by MNEs during post‐acquisition integration. Based on cross‐border M&A deals focused on U.S. targets completed by MNEs representing 45 countries between 2004 and 2012, we find that MNEs from countries with greater political affinity to the U.S. experience better post‐acquisition performance. We also investigate two country‐level factors that intensify the threat to legitimacy; the MNEs’ home market economic status and the presence of a financial crisis in the host market. Our findings indicate that political affinity mitigates risk for MNEs originated from emerging economies much more than for MNEs originated from developed economies, whereas a financial crisis reduces the benefit of political affinity.

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“…Consistent with prior studies (e.g. Kim & Bettis, ), we used financial ratios to calculate financial slack. Specifically, we measured financial slack as cash and cash equivalents scaled by total assets:

{financial slack}_{it} = \frac{firm cash + {cash equivalents}_{it}}{{firm size}_{italicit}}

where it represents a focal firm i in year t .…”

Section: Methodsmentioning

confidence: 99%

Organizational structure, slack resources and sustainable corporate socially responsible performance

Zhang

Jiang

et al. 2018

Corp Soc Responsibility Env

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The current research on the slack–performance relationship pays attention mainly to a set of overlapping slack natures, such as being sticky or absorbed, without sufficient consideration of variables related to the internal structure of a given organization. We posit that this weakness may prevent us from further understanding how different slack resources (the slacks) influence firms' corporate socially responsible performance (CSR). Combining the resource‐based view of the firm with a perspective of international integration, we propose a new model explaining how structural‐related variables may interact with the slacks and influence firms' CSR. Analyzing data from publicly listed US firms (2002–2012), we obtain evidence supporting the importance of organizational integration structure for understanding the slack–performance relationship.

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Cash is surprisingly valuable as a strategic asset

Cited by 147 publications

References 56 publications

When is cash good or bad for firm performance?

When is cash good or bad for firm performance?

Navigating the New Normal: Political Affinity and Multinationals’ Post‐Acquisition Performance

Organizational structure, slack resources and sustainable corporate socially responsible performance

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