The Role of Cash Reserves in Determining Investment-Cash Flow Sensitivity of Listed Companies in TSE

This paper investigates the relationship between financing constraints and investment–cash flow sensitivities by focusing on cash holdings of firms as the main classification variable to separate firms into financially constrained and unconstrained categories. It is predicted that high cash reserves increase the ability of firms to undertake profitable investment opportunities. in order to comparison of optimal cash reserves model with traditional indices of financial constraint, efficiency of variable such as firm size, dividend ratio and membership in business groups in determining of financial constraints have been examined. This research is a correlation study and is based on the panel data analysis. In this study, about 72 firms that was listed in Tehran Stock Exchange during the period 1378-1387, has been studied (720 company - year). Findings indicate a positive role for cash reserves in reducing investment–cash flow sensitivity of firms. On other hand, we found no certain superiority in the use of cash reserves optimum model compared with traditional criteria of financial constraints.