A Study on Cash Holdings and Firm Value in Listed Insurance Companies on the Vietnamese Stock Market

In the course of business operations, liquid capital plays a crucial role in ensuring the continuous functioning of enterprises, with holding cash being vital for companies to promptly meet various financial needs and facilitate other business activities. Given the uncertainties and economic instability caused by the impact of the Covid-19 pandemic and the global economic crisis, many businesses in Vietnam have shown a tendency to accumulate cash reserves. Cash holding enhances liquidity, providing flexibility for timely responses to investment projects and facilitating other operational activities. Facing the economic challenges posed by the Covid-19 pandemic and global economic uncertainties, businesses have found it advantageous to hold substantial cash reserves. Cash reserves contribute to increased liquidity, high financial flexibility, and the ability to fulfill financial obligations to creditors. Moreover, it enables companies to make timely payments to suppliers, cover operational expenses, carry out profitable investment projects, meet short-term needs, and prepare for unforeseen emergencies. Nevertheless, excessively holding cash can lead to serious challenges. Holding too much cash may tempt company managers to pursue personal interests by inefficiently investing below-market projects or overinvesting, which could impact shareholder interests and the company's overall value. One of the direct consequences is the opportunity cost of cash, which can be estimated based on the interest that the company could earn by depositing funds in a bank. In the era of the Fourth Industrial Revolution and the complex landscape shaped by the Covid-19 pandemic, Vietnamese businesses, particularly those in the insurance sector, are undergoing profound changes and transitioning to a new normal.