Investigating the relationship between cash holdings and expected stock returns, real returns, and systematic risk

Holding cash has its benefits and costs. The main purpose of holding cash is to reduce financial shocks, minimize capital costs, allow investment projects to be carried out efficiently in the presence of financial constraints. Keeping cash in a company's reserves acts as a hedge against future financial shocks, and companies tend to accumulate cash to deal with a possible financial crisis in the coming years. Holding cash also minimizes the cost of capital and costs associated with external financing, increasing investors' expectations of return on capital. Therefore, the purpose of this research is to investigate the relationship between cash retention and expected stock returns.The statistical population of this research is all the companies admitted to the Tehran Stock Exchange and 134 companies were selected in the period of 2015 to 2015 by systematic elimination method. Also, to test research hypotheses, multivariate regression model based on combined data was used. The results indicate that there is a direct and significant relationship between cash retention and expected stock returns. Also, there is no direct and meaningful relationship between cash holding and systematic risk. There is a direct and significant relationship between cash retention and the real return on the company's stock.