Investor Sentiment, Limited Arbitrage, and the Cash Holding Effect

Increase in cash holdings of U.S. firms: The role of healthcare and technology industries

“…Additionally, firms in healthcare and technology industries have more investment opportunities with higher marketto-book ratio (M B) than firms in other industries have. Consistent with Bates et al (2009), Li & Luo (2017), and Palazzo (2012), firms in healthcare and technology industries produce negative cash flows (CF ) from their operations (-0.11 and -0.029, respectively). They have higher cash flow risk (CF R), lower leverage (Leverage), and pay lower dividends (P ayout) to their shareholders.…”

“…Several measures of cash holdings have been used in the literature, including cash-to-assets ratio (Bates et al, 2009;Han & Qiu, 2007;Harford, 1999;Li & Luo, 2017;Palazzo, 2012), cash-to-net assets ratio (Harford et al, 2008;Opler et al, 1999), log of cash-to-net assets ratio (Bates et al, 2009;Foley et al, 2007;Simutin, 2010), and cash-to-sales ratio (Harford, 1999;Harford et al, 2008). Bates et al (2009) report that using different measures of cash holdings does not affect the results.…”

Sentiment Metrics and Investor Demand

“…Examples of asset pricing phenomena that have been examined with the BW metric include the value premium (Piotroski and So ()), momentum (Antoniou, Doukas, and Subrahmanyam ()), the idiosyncratic volatility puzzle (Stambaugh, Yu, and Yuan ()), 11 asset pricing anomalies associated with financial stress, equity issuance, accruals, operating assets, momentum, profitability, asset growth, ROA, and investment (Stambaugh, Yu, and Yuan ()), postearnings drift and accruals (Livnat and Petrovits ()), analyst forecast errors (Hribar and McInnis ()), hedge fund returns (Chen, Han, and Pan ()), responses to earnings announcements (Mian and Sankaraguruswamy ()), the accruals anomaly (Ali and Gurun ()), the forward premium puzzle (Yu ()), and time‐series variation in the slope of the security market line (Antoniou, Doukas, and Subrahmanyam ()). In the corporate finance arena, extant papers use the BW metric to examine whether investor sentiment impacts managers’ corporate investment decisions (Arif and Lee ()), firms’ financing costs (McLean and Zhao ()), earnings management (Simpson ()), cash holdings (Li and Luo ()), managers’ earnings disclosures (Brown et al. ()), the qualitative tone of managers’ earnings disclosures (Bochkay and Dimitrov ()), and the CEO's view of firm valuation (Hribar and Quinn ()).…”

Twitter investor sentiment and corporate earnings announcements

“…Sun et al (2016) illustrate that high-frequency investor sentiment based on a collection of news and social media content can predict intraday stock returns at the market level. Liew and Wang (2016) find 7 These also include, among others, Neal and Wheatley (1998), Lee et al (2002), Baker and Stein (2004), Cliff (2004, 2005), Edmans et al (2007), Schmeling (2007), Bergman and Roychowdhury (2008), Kaplanski and Levy (2010), Brown et al (2012), Hribar and McInnis (2012), Seybert and Yang (2012), Heiden et al (2013), Huang et al (2015), Baek (2016), Chau et al (2016), Frijns et al (2017, Li and Luo (2017), Aboody et al (2018), Chen et al (2019) and Gao et al (2021). 8 A parallel development has also occurred in the field of textual analysis of printed media and corporate reports with notable contributions made by Tetlock (2007) and Loughran and McDonald (2011) using dictionary-based analysis capturing the qualitative element of linguistic media and corporate filings.…”