StudentShare solutions
Triangle menu
  • Home
  • Subjects
  • Marketing
  • Response to Wall Street Journal Article Entitled: Cash-Rich Firms Feel Pressure to Spend

Response to Wall Street Journal Article Entitled: Cash-Rich Firms Feel Pressure to Spend - Essay Example

Not dowloaded yet

Extract of sample
Response to Wall Street Journal Article Entitled: Cash-Rich Firms Feel Pressure to Spend

Thus, these factors play a big role in the company determining what would be the optimal level of cash holdings, and is viewed from a number of points-of-view. They state:
In general, shareholders value a marginal dollar of cash at approximately face value. However, we find large cross-sectional differences consistent with existing theory. We document that the quality and volatility of the firm's investment opportunity set, the probability of financial distress, and access to capital impact the value of cash. Firms with good growth options have their cash valued at a premium to those with poor growth prospects. Additionally, cash is less valuable in firms with stable investment programs and those nearer financial distress. Finally, access to capital decreases the value of holding cash. Overall, it appears that both the investment and financing opportunity sets of the firm affect the value shareholders assign to cash holdings. (2)
Thus, one can now see that indeed see that the direction a firm will take in managing its cash assets depends not only on circumstances or factors, but also on what is the driving force of a firm. However, most firms are commonly affected or directed by factors that include, "
investment opportunities, agency costs, and market frictionsaccess to capital, and size of a corporation" (Pinkowitz and Williamson)

3. Can a firm hold "too much" cash What are the downsides of excessive cash holdings Support your answers.
As earlier stated, I am in concurrence with many views that cash may be excessively held by a firm has a tendency to be counterproductive rather than productive. As stated earlier and in Zuckerman's article, having cash levels that may be viewed as "too-much" for a particular firm...
There are indeed certain tradeoffs with each mode of reducing cash holdings. Increased dividend payments indeed increases the public view of the stock, and keeps the shareholders happy, but it creates a precedent that will always be looked at in the future. For example, if a firm declares high dividends this year, and for the next five years cannot match that dividend declaration due to economic and financial problems, shareholders and analysts will state that the company is underperforming thus resulting in fewer profits and less dividends in comparison to the one declared this year.
Share buybacks are a good way of decreasing the equity of a firm, but by decreasing the size of a firm controlled by investor’s equity, puts more power into the control of management which may lead to less checks and balances with regard to corporate acts which normally would alarm a shareholder. Many firms have gone belly up because top management acted in ways that greatly prejudiced the firm despite the voiced out concerns of a minority of shareholders. Indeed, just as the logic underlying this paper is that a balance between cash and debt on a balance sheet is good, so too is a balance between management and shareholder equity in control of a firm. ...Show more

Summary

The article highlighted the fact that corporations are under pressure from market investors, shareholders and from the corporation itself, to divest or to release much of the cash assets that it holds, in the form of dividends, share buybacks, or increased investments.

Author : marcia41
Response to Wall Street Journal Article Entitled: Cash-Rich Firms Feel Pressure to Spend essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Response to Wall Street Journal Article Entitled: Cash-Rich Firms Feel Pressure to Spend"
with a personal 20% discount.
Grab the best paper

Related Essays

Journal Article (Current event on Wall Street Journal)
Sparshott argues that economists on average on the Wall Street Journal have made a forecast survey that indicates that the probability is at 17 percent (7). Some of economists and other individuals including analysts claim that 17 percent is too low for the economy.
3 pages (750 words) Essay
Current wall street Journal Opinion Article
While for teens and young adults big discounts may not sound financially significant, a 40% markdown on the prices of goods is surely an early Christmas bonus for mothers who are trying to fit the paycheck for the rest of the week. But regardless of how one would view discounts, the fact is you did not really save anything.
3 pages (750 words) Essay
Summarize an article from the Wall Street Journal
The article highlights the general opinion of people that continue to oscillate between positive and negative views. The article itself is in fact a contrast between the views of professionals, John M. Torrens and Dave Slavinsky who systematically discuss the pros
1 pages (250 words) Essay
Journal Article (Current event on Wall Street Journal)
Sparshott explains that, with the speculation that a huge sum of the military spending is on the cut, there is a Herculean expectation that other
3 pages (750 words) Essay
Wall Street Journal Opinion Article
This came after the economy of China was presumed not to grow beyond eight percent of their quarter due to the drawback that had occurred in the trade world. This consequently led investors to withdraw from engaging
3 pages (750 words) Essay
Wall street Journal opinion Article
Whereas the aim of minimum wages is to enhance the economic welfare of the working-poor, loss of employment impacts minimum wages increases by making them to fall inexplicably on those who are least skilled and on the most disadvantaged persons. The least skilled and on
3 pages (750 words) Essay
Wall street journal
estic economic environment, An analysis on a number of different international trade theories and their impact on government policies supporting or constraining trade, a discussion on how the balance of payments is a lead indicator of a given country’s international economic
5 pages (1250 words) Essay
Wall street journal
According to the article, the new Apple Air 2 is designed to be 18% thinner than its predecessor in addition to also having a more powerful graphics engine and
5 pages (1250 words) Essay
Wall street journal
According to the article, over the last nine months, the company’s European operations have lost an estimated $619 million and it is predicted that the operations will largely remain unprofitable in 2015 as Mr. Farley steps into the role. On the other hand, Mr. Odell
5 pages (1250 words) Essay
Macro Economics Wall Street Journal Article
Author Alexander Gelber assessed the effectiveness of the Summer Youth Program in New York City, together with two co-authors. They obtained the following key findings revealing that the benefits exceed the costs of such programs. By around October 2014, about eighty-six
1 pages (250 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation