Are excess cash holdings more valuable to firms in times of crisis? Financial constraints and governance matters

This study examines the impact of cash holdings on firm value before and during the 2008 financial crisis, conditional on financial constraints and corporate governance. We show that the equity market places a higher value on corporate cash holdings during the financial crisis and cash holdings are more valuable to constrained firms, compared to unconstrained firms. However, the triple-interaction of cash with constraints and crisis shows the crisis value effect for constrained firms is weaker than for unconstrained firms. Further, the triple-interaction of excess cash with governance and constraints shows that a positive governance effect on corporate cash holdings is more pronounced for firms that are financially constrained.