Excess Cash Holdings, Stock Returns, and Investment Organicity: Evidence from UK Investment Announcements

Edward Jones*, Hao Li, Oluwagbenga Adamolekun

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)
123 Downloads (Pure)


This paper examines whether the market reaction to investment announcements is conditional on company excess cash holdings. Cash may convey significant price-relevant information about the future cash flows and strategic direction of a company. Using a sample of 4,256 corporate investment announcements by firms listed on the London Stock Exchange over the period 2005–2019, we show that market reactions to new company investment announcements are higher for firms with excess cash holdings. Furthermore, we provide evidence on the relationship between excess cash holdings and market valuation of various investment classes. The results reveal that organic investments are valued more highly by the market than inorganic investments, and the positive impact of excess cash holdings is more pronounced for the set of organic investment decisions, particularly product launches and R&D. Lastly, we evaluate how the motive for holding cash affects the market perception of excess cash holdings. The market views excess cash holdings as positive when cash is held as a result of high exposure to risk, high debt capacity, and high bid–ask spread. Market perception of excess cash holdings reverses from negative before to positive after the global financial crisis.

Original languageEnglish
Pages (from-to)603-647
Number of pages45
Issue number4
Early online date2 Dec 2022
Publication statusPublished - 16 Dec 2022


  • Cash
  • Cash holdings
  • Corporate investment
  • Event study
  • Inorganic investment
  • Managerial entrenchment
  • Market perception
  • Motives for cash holdings
  • Organic investment
  • R&D

ASJC Scopus subject areas

  • Accounting


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