war chest

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War chest

Cash kept aside for a takeover or for defense against a takeover bid.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

War Chest

Informal; money a corporation sets aside to pay for or defend against a hostile takeover. A war chest is highly liquid, and while it can cut into short-term profits, it may open up investment opportunities for the long-term. The term is commonly used in journalism.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

war chest

Liquid assets accumulated by a firm to use in a potential acquisition or in defending itself against a takeover attempt. A substantial war chest adds security and enhances investment opportunities but is likely to be a drain on short-term profitability.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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In the spirit of Spence, a war chest may provide an incumbent with a lower marginal cost of generating campaign spending.
For this argument to hold, however, accumulated funds must have no alternative use; that is, once garnered, funds held in a war chest must have a (near) zero opportunity cost.
There is an alternative Spencian aspect to a war chest, however, which underlies the second deterrence mechanism.
Sorauf [1988, 160] views a war chest as a "display of political prowess." His definition of prowess would include an ability to build a campaign organization, campaign skills, and fund-raising capabilities.
In the second mechanism, the raising of a war chest is a visible investment in future fund raising.
Of course, we should not overlook an important indirect effect of the incumbent's war chest on the challenger's donor pool.
To test whether a war chest indeed deters entry, we need first to define what is meant by entry into a political race.
Challengers with prior political experience or brand-name capital would be expected to perform better against an incumbent should they choose to run.(14) Are they, therefore, more likely to challenge an incumbent with a large war chest? Several arguments can be made that indicate not.
The incumbent's war chest is defined by cash on hand as of December 1987, eleven months prior to the general election.
The signalling mechanisms, by which a war chest deters entry, suggest the effect may be greater for incumbents who have yet to establish a reputation for waging a re-election campaign.
Another interaction variable is used to investigate the first mechanism, where the dollars raised in a war chest serve as excess capacity with which to wage a campaign.
The results reported in table I conform to expectations and strongly suggest that a war chest may act to deter entry.