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

Question

Quizplus · Accepted Answer

Retaining large amounts of cash can allow a firm to avoid transaction costs and financial distress costs, such as fees for obtaining a loan or selling assets in a hurry. It also provides a cushion for unexpected expenses, which can help the firm avoid financial distress. It is not related to tax payments or clientele effects.

Firms May Retain Large Amounts of Cash to Cover Future