University of Tehran Press Interdisciplinary Journal of Management Studies 2981-0795 12 1 2019 01 01 The Effect of Deviation from Optimal Cash Level on Adverse Selection and Moral Hazard in Firms Listed on Tehran Stock Exchange تاثیر انحراف از سطح مطلوب وجه نقد بر مشکلات گزینش نادرست و خطر اخلاقی در شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران 69 90 69360 10.22059/ijms.2018.258468.673146 EN Samira Joudi Faculty of Economics and Management, Urmia University, Urmia, Iran Gholamreza Mansourfar Faculty of Economics and Management, Urmia University, Urmia, Iran Hamzeh Didar Faculty of Economics and Management, Urmia University, Urmia, Iran Journal Article 2018 05 21 This study aims to investigate the impact of deviation from optimal level of cash holdings on adverse selection and moral hazard problems. The data set includes 106 listed firms of Tehran Stock Exchange during the period of 2005-2016 and both panel data and cross-sectional data multivariate regressions were utilized in different stage of analysis to test the hypotheses. According to the optimal level of cash holdings, firms were divided into two groups of firms with or without excess cash holdings. The results of the study revealed that lower optimal level of cash holdings increases adverse selection. In addition, higher optimal level of cash holdings leads to moral hazard. In other words, the findings confirmed both pecking order and free cash flow theories. The findings imply that there is a positive relationship between information asymmetry and marginal value of cash holdings. Such a relationship will gradually decrease when the firms hold higher than optimal level of cash and translate into a negative one. https://ijms.ut.ac.ir/article_69360_77012266c9b26c82711915a9ab3efb4e.pdf