The previousmodel has demonstrated there is a quadratic relation (concave) between firmcash holdings and firm value, for this we have two contrary effects. The maincore in this section is support the evidence that the firm value will not bemaximizing when it is not on the point of optimal cash holding level.Holding cash always exist cost but after offsetting if thecost is still lower than the benefit, it is a good choice for firm to keep orincrease their value.

That case happens when amount of cash is under theoptimal point. Explaining in another way, the change of firm value when thecash amount increased by one unit. However, the market will not place the highvalue for firm when it stores enormous cash which crosses over the optimum.Tong’s methodology will be used to analyze whether deviation from optimal pointwill reduces the firm value or not. We will replicate the method from theoriginal of Tong which empirically tests the transaction cost theory ofmanagerial ownership and firm value predicts that deviations from optimalmanagerial ownership reduce firm value. Due to the result of model (1), themovement of cash amount causes deviation surely decreases the value of firm.Because optimal cash holding level is the highest plot to maximize the firmvalue, increasing or decreasing cash does not make the firm value is on itsultimate point. Tong’s methodology (2008) also states that above-optimal orbelow-optimal deviation reduce firm value.

For this reason, in model (2) CASHitis seemed as dependent variable and depends on control variables exist in model(1) as SIZEit, LEVit and INTANGIBLEit. Moreover, we alsoused CFLOWit, LIQit and BANKDit to derives thismodel.with notionof CASHit is the ratio of cash and cash equivalent to totalassets; CFLOWit is the ratio between profit after tax plusdepreciation and gross sales; LIQit is the liquidity assets which is calculated asworking capital less total cash and short term investment divided by firms’total assets; LEVit is the leverage, it is introduced in the firstmodel; SIZEit is the size of firm, it is similar to the SIZEitin model (1); in additionally, BANKDit is the new added variable in this model tomeasure the ratio of bank loans to total debt; finally, INTANGIBLEitproxies for growth opportunities and is calculated as intangible assets dividedby total assets; ?i is the unobservable heterogeneity; ?trepresents for dummy variables and ?it is the error term.The existence of model (2) is a buffer state to define theresiduals. It consists of all residuals after eliminating CASH and CASH2(model (3)). Getting the absolute value of residuals, we have DEVIATIONit.This DEVIATIONit is a dependent variable of model (2) and it is asignal to prove firm value will change whether this variable moves away fromthe optimum. Following this situation, we generate the model:where Vit is thefirm value, proxied as MKBOOK1 and MKBOOK2.

DEVIATIONit is thedependent variable from absolute value of model (2); INTANGIBLEit,SIZEit, LEVit are control variables defined as above.The hypothesis used to testhere is ?1 < 0 which reveals the evidence that DEVIATIONit has anegative relation to the firm value. All estimationshave been carried out using the two-step GMM estimator. All variablesare treated as endogenous and the lagged independent variables are used asinstrument. In column (1) the dependent variable is MKBOOK1, which is firm'smarket value over total assets. In column (2) is another proxy of firm valueMKBOOK2, which is the ratio of market capitalisation to book value of equity.DEVIATION is the absolute value of residuals from optimal cash holding levelregression. Control variable are SIZE, INTANGIBLE and LEV.

Time dummies areincluded in all regressions.Sargan test isa test of overidentifying restrictions, distributed as chi-square under thenull of instrument validity.The abovetable shows the coeffecient between proxies of firm value (MKBOOK1 &MKBOOK2) and the right-side variables of equation where explain whetherdeviations from optimal cash holding influence firm value represented byproxies. The results in column 1 match with the expectation, the coefficient ofMKBOOK1 and DEVIATION is negative and the confidence interval is correct at95%. It is a good signal to demonstrate that the corporate value will be nolonger maximum when it is not at the optimal point. Nevertheless, the MKBOOK2column does not react as we expect and the p-value is also meaningless. Thus,the coefficient of MKBOOK2 and DEVIATION does not correlated to the firm value.

In order to clear the way in which both deviations, overand under the optimal cash level, affect firm value, we continuously produce anew model adding a new variable (INTERACTION) to distinguish above or below theoptimal point. INTERACTION equals to Above-optimal*DEVIATION. Using dummyvariable method for variable Above-optimal which will take 1 when it is apositive number and vice versa will be equal to 0. With this, we have thefourth model.whereVit is the firm value, proxied as MKBOOK1 and MKBOOK2.

DEVIATIONitis the dependent variable from absolute value of residuals and INTERACTIONitdefined as above; INTANGIBLEit, SIZEit, LEVitare control variables defined as above.