the handsof larger, more mature companies. Surprisingly,
theyfindonlyaweakrelationshipbetweenhowthemarket
values cash and a firm’s accessto capital markets. In an
interesting contrast, another study that applies the same
techniqueto non-U.S.marketsfindsthatadollarincash is
valued at only $0.65 in emerging markets with weak
stockholder protection.
26
SchwetzlerandReimund(2004)extendthisanalysistolook
at cash holdings in German companies.
27 Relating theenterprise value of German firms to their
cash-to-salesratios,theyconcludethatfirmsthathavelower
cashholdingsthanthemedianfortheindustriesinwhichthey
operatetradeatlowervalues,whereasfirmsthatholdexcess
cash (relative to the median) trade at higher values.
FaulkenderandWang(2004)findcontradictoryevidence,at
least in the aggregate.
28 Theyconcludethatthemarginalvalueofadollarincash
acrossall firms is$0.96.In otherwords,markets discount
cash by a small amount rather than add a premium.
Furthermore,themarginalvalueofcashdecreasesasthecash
holding increases and as firms borrow more money. The
marginal value of cash is also lower for firms that pay
dividends rather than buy back stock, reflecting the tax
disadvantagesaccruingtodividendsduringthesampleperiod.
Finally,themarginalvalueofcashismuchhigherforfirms
thatarecapitalconstrained andhavesignificantinvestment
opportunities.FaulkenderandWangattributethedifferences
betweentheirfindingsandthefindingsinearlierstudiesto
thefact thattheyused equityvalues ratherthanenterprise
values to estimate the value of cash.