The optimal way to increase cash holdings: From a market perspective - a study of various ways to increase cash holdings and their implications on market value during economic boom and recession

Abstract: The main purpose of this paper is to identify a relationship between different approaches to accumulate cash and companies’ market values between periods of different economic conditions. Our thesis contributes with information that helps firm managers decide how to increase cash holdings. We come to the conclusion that firms increase their cash holdings by decreasing investments in research and development, reduce capital expenditures and diminish dividend payments. Further, we also come to the conclusion that the market values these cash accumulating approaches differently depending on current economic condition. Cuts in dividends are kindly looked upon by the market throughout the periods, meanwhile cuts in capital expenditures are most favorable during the crisis and cuts in research and development has the least negative impact on the market value in the post crisis years.