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This study examines the relationship between marginal value of cash holdings and overinvestment as well as corporate governance of firms in the capital market (i.e. Tehran Stock Exchange). The aim of this paper is to evaluate whether cash holdings have different value creation potential for firms with overinvestment and underinvestment and whether corporate governance can moderate this value creation potential. The results of the present research could give investors new insights into the value creation potential of cash holdings policy. Employing panel data analysis on a sample of 162 quoted firms during 2009 to 2015 in R statistical software, our findings demonstrate that there is no significant difference between firms with over investment and those with underinvestment in terms of marginal value of cash holdings. Moreover, our findings indicate that there is a negative and significant relationship between marginal value of cash holdings and overinvestment in firms overinvesting in stock. We also provide some evidence that while the latter finding can be moderated by institutional investors, auditor reputation and corporate board of directors’ independence have no significant bearing on it