Analyst expertise and the value of cash holdings

This study investigates whether analyst expertise mitigates the value destruction associated with an increase in cash holdings. We find that analyst expertise increases the marginal value of cash holdings, and that this effect is more pronounced for firms in an environment where analysts’ forecasts are more dispersed and for firms with weaker monitoring from institutional shareholders. Overall, our results are consistent with our conjecture that analyst expertise enhances external monitoring, thereby preventing potential misuse of cash holdings and the associated destruction of cash value.