Firm Size, Information Asymmetry and Window Dressing in Cash Holdings: Evidence from Quarterly Financial Statements

To the best of the author’s knowledge, this is first empirical paper to examine the tendency of U.S. corporate firms to engage in window dressing behavior in cash holdings. Using quarterly financial data, S&P constituents’ data, and S&P issuer credit rating data from Compustat, stock price data from Center for Research for Security Prices (CRSP), and governance index data, we find evidence of upward window dressing in cash holdings during the fourth fiscal quarter (financial year-end) even after controlling for corporate cash holdings determinants. This window dressing behavior is widespread across subsamples based on size, competition, risk, governance, and level of information asymmetry. Our findings further suggest that the upward window dressing in corporate cash holdings towards fiscal year-end is sensitive to firm size and to some extent the level of information asymmetry.