Abstract

The purpose of this study is to investigate relationships between financial constraint, cash value and investment. The study samples consist of 86 firms listed in Tehran Stock Exchange (TSE) for the period of 2006 to 2010 (430 year-firm). Three WW, KZ and KZ_IR indexes are used for determining whether firms have financial constraint or not. The results from the first hypothesis show that holding optimal level of cash is very important for firms and cash increases firms' value in constrained more than unconstrained firms. Findings from the second hypothesis indicate that cash and investment have positive relationship. Also, taking that companies are always seeking to maximize their profit and return into consideration, one of the ways to achieve this goal is investment. The third hypothesis suggests that changing in the level of cash holding result in excess return in constrained firms more than unconstrained firms. This change in the level of cash holding may improve firm`s return and performance.

Key words: Financial constraint, cash value, investment, company value, excess return.