Why do firms hold large amounts of cash and cash equivalents? Various explanations have been offered for the incentives of firms to hold cash. A popular explanation is that cash provides low cost financing for firms. According to this view, raising external finance costs more in the presence of asymmetric information between firms and external investors (Myers and Majluf, 1984); costly agency problems such as underinvestment and asset substitution (Myers, 1977; Jensen and Meckling, 1976); and transaction costs and other financial restrictions.