Maintaining excessive cash may reduce firm profitability because of low returns on cash investments.

Question

Quizplus · Accepted Answer

When firms maintain excessive cash, it means they have a large amount of uninvested cash that is not generating any significant returns. As a result, the returns on cash investments are usually low, leading to a reduction in profitability. Therefore, maintaining too much cash can negatively impact a firm's profitability.

Maintaining Excessive Cash May Reduce Firm Profitability Because of Low