LAUSR

Abstract The new finding of this study is product market and firm investment in organization capital (“OC”) together explain cash holdings. The study integrates agency and product market views of cash holdings, resolving conflicting findings in prior literature. Controlling for product market, high OC firms hold less cash than low OC firms. Agency theory predictions regarding cash holdings are not in conflict with a product market view of cash. Univariate tests show high OC firms operate in industries more likely to experience product market strain, have higher cash holdings, take more risk, have lower leverage, lower total shareholder payouts, and higher future growth prospects. Multivariate regressions including product market factors indicate high OC firms hold less cash. It is product market factors such as market concentration and import intensity that are positively associated with cash holdings. OC and cash holdings are positively associated with firm value. Product market stress is negatively associated with firm value. Findings are robust to alternative measures of organization capital, product market and cash holdings.