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Revisiting the concept of a competitive “cash advantage”

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Purpose

– The purpose of this paper is to profile how ample cash holdings can serve as a competitive advantage by first mitigating the risk of becoming a forced seller during times of distress, and then positioning a firm to take strategic advantage of forced selling and other forms of distress-generated opportunities.

Design/methodology/approach

– The author reviews the changing role of cash over time in corporate strategy, and how inadequate cash has caused or contributed to corporate failures.

Findings

– The findings of this paper, which are supported by historical and contemporary examples, are that ample cash reserves can be a powerful source of comparative advantage.

Practical implications

– This article supports earlier work published in Strategy & Leadership that shows how Graham-and-Dodd-based analysis is a viable avenue of academic research and a viable method with which to assess and formulate corporate strategic initiatives such as mergers and acquisitions, share buy-backs, risk management and, in this case, the strategic uses of cash.

Originality/value

– This paper offers leaders and financial executives a practical explanation of how ample cash holdings can serve as a competitive advantage.
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Keywords: Corporate financial strategy; Distress investing; Financial risk management; Strategic cash advantage

Document Type: Research Article

Publication date: July 20, 2015

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