Cash management strategies and firm financial performance: A comprehensive literature review

Mustapher Faque

doi:10.36096/brss.v3i4.295

Authors

Mustapher Faque

DOI:

https://doi.org/10.36096/brss.v3i4.295

Keywords:

Cash (Liquidity), Cash management, cash holding theories, Financial performance

Abstract

Cash(liquidity) management is at the heart of a firm’s financial management. It is a silver lining between the bankruptcy and the success story of a company. Therefore, this study intends to contribute some insights into cash management practices and how firms can use them to achieve sound financial performance. This study provides a comprehensive literature review on existing theories and cash management practices that are useful in decision making. After the analysis of the available literature, the study highlights important theories including trade-off theory (TOT), transaction model, precautionary measures, financial hierarchy, and cash flow theory. Furthermore, management practices such as stochastic cash management model, speeding up cash collections, centralization & decentralization of management, asset portfolio diversification, and cash disbursement are discussed. The study suggests that a sound financial performance can be achieved through a hybrid approach and through adaptation and embracing innovations in cash management systems.

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