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Accruals quality and corporate cash holdings

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Abstract

This Work Uses Panel Data For Firms Listed In The Spanish Stock Exchange Over The Period From 1995 To 2001 To Analyse The Effect Of Accounting Quality On Cash Holdings. The Results Show That Firms With Good Accruals Quality Hold Lower Cash Levels Than Firms With Poor Accruals Quality. This Finding Suggests That The Quality Of Accounting Information May Reduce The Negative Effects Of Information Asymmetries And Adverse Selection Costs, Allowing Firms To Reduce Their Level Of Corporate Cash Holdings. The Results Also Show That Cash Holdings Decrease When Firms Increase Their Use Of Bank Debt And In The Presence Of Cash Substitutes. In Contrast With This, Firms With Higher Cash Flow Hold Higher Levels Of Cash.
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Keywords: Accounting quality; Accruals quality; Cash holdings; G31; G32; Information asymmetry

Document Type: Research Article

Affiliations: 1: Departments of Management and Finance and 2: Accounting, Faculty of Economics and Business, University of Murcia, Murcia 30100, Spain

Publication date: 01 March 2009

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