Paper Title
Asset Specificity And The Value Of Cash Holding

Abstract
This study investigates the impact of asset specificity on the value of cash holding. Running specific assets can enhance firm values but also have to struggle with transaction costs and opportunism. I utilize the marginal value of cash holding to detect how specific assets influence the liquidity demand. Asset specificity increases the value of cash holding with the concern of lower liquidation value (transaction costs point of view) while it destroys the marginal value of cash due to hold-up problem of managers (opportunism point of view). The evidence shows that asset specificity generates extra value in cash holding only when firms are close to default. To highlight the limited benefit of extra cash holding for specific assets, I further detect the impact of asset specificity on the investment-cash flow sensitivity. I find that asset specificity reduce positive relation between investments and cash holding. That implies asset specificity has little to do with financial constraint. Both evidences suggest that holding extra cash is useless for firms with specific assets to gain from investment flexibility. Keyword- Asset specificity; Value of cash holding