Organization capital and the value of cash holdings

Abstract

Within industries, some firms outperform their competitors. These organizations have demonstrated unique systems and processes employed in investment, production, and sales activities. These collective resources are called Organization capital. It would help firms smooth their future cash flow and reduce future cash uncertainty, so it could help to alleviate financial constraints in that it decreases a firm’s sensitivity to internal cash flow. Therefore, under precautionary motive, I found that stable and better performance reduces the uncertainty of future cash flows and mitigates incentives for holding cash in firms with a high level of Organization capital. The results are identical after considering endogeneity problems.