Cash Holdings, Financial Leverage, and Excess Stock Returns: The Role of Firm-Level Uncertainty

Document Type : Original Research


1 Department of Accounting, Management and Accounting Faculty, Islamic Azad University Tonekabon Branch, Tonekabon, Iran

2 Department of Finance, Management and Accounting Faculty, Islamic Azad University Karaj Branch, Alborz, Iran


Cash is one of the most important and critical resources in each profit entity, and exploring its relevance to stock returns and the extent to which it is influenced by the firm-level uncertainty is one of the most important issues in corporate decisions. The present study investigated the relationship between cash holdings, financial leverage, and excess stock returns considering the role of uncertainty level. This study uses all publicly firms on Iranian stock exchange. Data base on records of financial statements and market data of all Iranian firms that are listed on Iran Stock Exchange, and that are subject to the regulations by the Capital Market Authority in Iran. In addition, we use data from Iranian stock exchange for the period 2004–2018 to construct variables based on the information contained in financial statements. The results indicated that financial leverage and changes in cash holdings affect excess stock returns, and cash holdings are affected by the firm-level uncertainty. This paper fulfils an identified the role of Firm-level uncertainty in cash management, capital structure, and investment decisions.


Main Subjects


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