Firms may retain large amounts of cash to cover future potential needs that allows a firm to avoi?

Question

Quizplus · Accepted Answer

Retaining large amounts of cash can help firms avoid transaction costs associated with frequent borrowing and financial distress costs associated with potential bankruptcy or default. This allows the firm to have the necessary funds available for future potential needs without having to incur additional costs or risk. Cash retention may also have tax benefits, but this is not the primary reason for retaining cash.

Firms May Retain Large Amounts of Cash to Cover Future