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What is the effect of cash injections during financial crises? Exploiting county-level variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of local weather-driven cash flow shocks on the real and financial sectors. We show that such cash flow shocks significantly affect a host of economic outcomes, including land values, loan delinquency rates, the probability of bank failure, employment, and wages. Estimates of the effect of local cash flow shocks on county income levels during the financial crisis yield a multiplier of 1.63.

According to a recent conjecture in the literature, earnings have become a poorer proxy for cash flow from operations over time. We find that since 1988, when cash flow statements started to be consistently reported in Compustat, the cash effectiveness of earnings has actually increased for a large sample of US manufacturing firms. This occurs despite the introduction of fair value accounting and increasing accounting accruals during the last three decades. The evidence suggests that this puzzle is explained by more efficient working capital management. Also contrary to the conjecture, using more comprehensive measures of cash flow does not restore the investment-cash flow sensitivity, which continues to be around 0.05 in more recent periods. We end by noting that the investment model used in the literature can be enhanced by including accruals, since it leads to a more precise estimation of cash flow.

This paper builds on the agency costs of free cash to explain how firms determine their payout policies. Payout methods considered are dividends and open-market stock repurchase programs. Dividends eliminate the agency costs of free cash by reducing cash under management (insiders) discretion, but could result in underinvestment if the paid out cash is needed later for operations. Stock repurchase programs avoid the underinvestment problem by giving insiders the option to cancel the payout. They are also an incentive to pay out cash because they provide trading gains to better informed insiders through the firm's informed trade. Because their execution is optional, however, repurchase programs cannot always prevent the waste of free cash. Payout policy is thus determined as a trade-off between eliminating agency problems with dividends and preserving financial flexibility with open-market programs.

I explore the role of the just-in-time (JIT) inventory system in the increase in cash holdings by U.S. manufacturing firms. I develop a model to illustrate the mechanism through which JIT affects cash and quantify its impact. In the model, both cash and inventory can serve as working capital. As firms switch from the traditional system to JIT, they shift resources from inventory to cash to facilitate transactions with suppliers. On average, this switchover accounts for a 4.1-percentage-point increase in the cash-to-assets ratio, which is approximately 28% of the change observed in the data. Data are available at https://doi.org/10.1287/mnsc.2017.2775 . This paper was accepted by Neng Wang, finance.

We examine the corporate cash holdings of listed shipping companies and show that shipping firms hold more cash than similar firms in other asset-heavy industries. Higher cash holdings in the shipping industry are not attributable to firm- or country-level characteristics, but rather to the higher marginal value of cash. Shipping firms value an additional dollar of cash higher than matched manufacturing firms, regardless of their financial constraints status, but depending on their cultural background and the cyclicality of their expansion opportunities. Less procyclical shipping firms have a higher marginal value of cash, and this valuation effect is most pronounced in bad times of the business cycle when external capital supply tends to becomescarce.Overall, it appears that shipping companies are more conservative than their peers in managing their cash positions.

Cash is an important and highly liquid asset held by a business firm to meet its liquidity needs and other purposes. Cash holding level bear real consequences on the financial and operating performance and policy of a firm in both short run and long run. In India, there has been a dramatic increase in the corporate cash holdings over the last decade. For the last three years, the percentage of assets that the listed firms are retaining as a cash has undergone an unusal increase. The major purpose of this study is to explore the speed of adjustment of cash balances of sampled firms towards target cash holding. The study sample consists of 849 manufacturing firms listed on National Stock Exchange of India for the period 2007-2012. The present study used dynamic panel data regression analysis to address the dynamic nature of cash holdings, where the generalized method of moments (GMM) technique was employed for estimating the determinants and the speed of adjustment (SOA) of cash holdings with one-step and two-step estimators of system GMM (SYS–GMM) The findings indicate net working capital, leverage, capital expenditure, default spread and T-bills rates have negative association with the cash to total asset ratios while the dividends, net debt issuance and net equity issuance have positive association with cash holding levels of the firm. The estimated adjustment coefficient (λ) is below 0.5 signifying that a typical firm in the sample closes more than half the gap between actual and target cash holdings within one and half year and the entire gap within two and half years. The study results supports trade-off theory of corporate cash holdings. This study provides an insight to the dynamic nature and speed of adjustment towards the target level of cash holdings of sample firms, which might help a finance manager in the better management of cash holdings. Effective liquidity management leads to the realization of long-term financial goals and objectives of a firm.

Internal rate of return (IRR) is a widely used tool in ranking capital budgeting projects and eventual accept or reject decisions. In this paper, we consider an investment decision involving a sustainable, energy efficient, greenhouse gases (GHG) reducing asset and incorporate the value of carbon emission allowances for the investing company. These allowances create cash flows that may be characterized by significant volatility and uncertainty. The methodology developed in this paper allows decision makers to integrate their knowledge of carbon trading markets and the cash flows that result from sale of emissions credits. The novel methodology utilizes a Bayesian model for IRR that uses Gibbs sampler. Analysis of the results shows that IRR is influenced by volatility and uncertainty of carbon credit cash flows. Ignoring those uncertainty characteristics and simply using the expected values of cash flows can result in significantly inaccurate investment rate of returns. When compared to deterministic IRR calculations, the results show that the occurrence of very high and very low cash flows affects IRR positively, whereas higher variability of cash flow distribution affects IRR of GHG-reducing asset negatively. In other words, frequent large or small cash flows are preferred over fluctuating cash flows. The results may also provide a rationale for the existence of an anomalous consumer behavior known as the energy efficiency gap.

In business, enterprises need to maintain stable cash flows to meet the demands for payments in order to reduce the probability of possible bankruptcy. In this paper, we propose the optimal cash holding models in terms of continuous time and managers’ risk preference in the framework of stochastic control theory in the setting of cash balance accounting with the interval of a safe area for cash holdings. Formulas for the optimal cash holdings are analytically derived with a widely used family of power utility functions. Our models can be seen as an extension of Miller-Orr model to solve the cash holding problem of continuous time from the accounting perspective. Numerical examples are also provided to illustrate the feasibility of the developed optimal cashing holding models of continuous time.

This study examines the value relevance of banks' cash flows from operations. While banks are required to provide statements of cash flows under Generally Accepted Accounting Principles (GAAP), banks have long argued that cash flow information is not useful for the banking industry. Using a sample of banks from 2004 to 2014, we find that banks' cash flows from operations are predictive of future earnings and cash flows. Applying a modified Ohlson's (1995) valuation model, we document that banks' cash flows from operations are positively and significantly associated with share prices. Furthermore, we find the usefulness of banks' cash flows to vary depending on three important bank characteristics: profitability, capital adequacy, and credit risk. Taken together, these findings suggest that banks' cash flows from operations provide useful information to investors in valuing banks' equity. This study contributes novel empirical findings that enhance our understanding of the predictive ability and valuation usefulness of banks' operating cash flows.

Worldwide corporate cash holdings have significantly increased and have become an important tool for managers. This study explores the factors that influence firms’ behavior regarding cash holdings and the signal that financial conservatism is sending to potential investors. Our data consists in annual observations collected through the Reuters Eikon platform. It includes companies listed on the Bucharest Stock Exchange, the investigated period being 2005-2014. The econometric analysis employs multivariate regression for an unbalanced panel data, using the OLS technique. The results show a positive correlation of cash holdings with the value registered by this indicator in the previous period, fact that might be interpreted as an attempting of the companies to maintain a target level of cash. Also, the results showed a non-linear relationship between leverage and cash holdings, while the tangible assets determine a negative correlation. As regards firm size and ownership concentration, the correlations were not statistically validated.

This paper models a cash conversion system in a subsidiary of a parent company where there is an active internal capital market, but otherwise the subsidiary has no access to additional external funds. The cash conversion system consists of a treasury, a single-product make-to-stock inventory, and a receivables pool. It implements a perpetual flow cycle, where funds convert to product and back to funds. The system is stationary, and revenues and costs flow directly to the parent company. The parent company aims to maximize equilibrium (long-run) financial metrics in terms of net profit rate and rate of return. To this end, we model this system as a discrete-state continuous-time Markov process and compute its equilibrium state distribution using analytic and numerical methods. These are then used to derive statistics of the equilibrium cash conversion cycle and define equilibrium financial rate metrics and cumulative counterparts that incorporate the time value of money. We further optimize the financial and operational designs of the system and, specifically, the internal capital allocation and inventory base stock level. Finally, noting the potential for friction in the parent–subsidiary relationship, we study numerically the impact of moral hazard and internal capital market inefficiency on optimal designs. The online appendix is available at https://doi.org/10.1287/msom.2017.0625 .

This study examines whether the managerial ability of a chief executive officer (CEO) is associated with a marginal value of cash. We predict that more talented CEOs make better use of cash, creating the marginal value of cash. Using the managerial ability measures of Demerjian et al. (2012) and the cash value model developed by Faulkender and Wang (2006), we find that CEO managerial ability significantly increases the marginal value of cash. We also find that the effect of managerial ability on the marginal value of cash is generally greater for financially constrained firms. We further show that that the positive impact of managerial ability on the marginal value of cash is more evident for firms with higher levels of free cash flows and lower management entrenchment. Overall, our findings suggest that the market places a higher value on cash if the cash is managed by more able CEOs, which is consistent with the view that shareholders consider the ability of a CEO when they evaluate cash.

This paper investigates the determinants of the cash holdings for a sample of Saudi firms over the period 2006–2014, using static and dynamic panel models. Our results show that leverage, firm size, capital expenditure, net working capital and cash flow volatility are important in determining cash holdings. When we divide our sample into two sub-samples: petrochemical and non-petrochemical firms, our results show a significant difference between the determinants of cash holdings of the two groups of firms. We also investigate the characteristics of high liquid firms (conservative firms). The results indicate that conservative firms are less leveraged, have large size, have low investment expenditures and have low cash flow fluctuation. Furthermore, dynamic panel estimation indicates that Saudi firms adjust their liquidity holdings quickly towards an endogenous target cash ratio.

Prior studies show that net stock issuance is negatively associated with the cross section of future stock returns, reflecting a market anomaly. Our study provides empirical evidence on whether cash flow can mitigate such anomaly. Consistent with prior research, we initially provide evidence of the anomaly in our sample and that the anomaly persists in the presence of cash flow. We then decompose net stock issuance into stock issues and stock repurchases and find that the anomaly is only driven by stock issues but not stock repurchases and that the stock issues’ anomaly persists even in the presence of cash flow. JEL Classification: G12, G14

This study investigates the impact of Chief Executive Officer (CEO) succession on a firm's financial constraints. Using panel data consisting of CEO turnover and non-turnover cases of listed companies in China, we find that new CEOs play a significant role in alleviating a firm's financial constraints. Specifically, the level of cash holdings, the investment to cash flow sensitivity, and the cash to cash flow sensitivity all decline following a new CEO's succession. These effects are stronger in cases where the turnovers are forced and the firms are more financially constrained.

U.S. multinational firms hold significantly more cash than domestic firms. I study this cash differential using a dynamic model featuring corporate physical and intangible investment, cross-border decisions, and financial policies. I find that the cash differential diminishes by 42% if repatriation costs are set to zero. Hence, costly repatriation induces cash accumulation offshore. Further, firms that invest overseas have different ex ante cash policies from firms that do not. I examine this self-selection effect by eliminating heterogeneous intangibility across multinational and domestic firms, which reduces the cash differential by 28%. I also examine the likelihood of corporate inversion under federal regulations. The estimated annual tax loss to the U.S. Treasury from inversions is reduced from $2.2 billion to $1.3 billion if the requirements for foreign ownership are tightened from 20% to 50%.

This research examines the relations between tournament-based incentives and corporate cash holdings and the value of cash. We find robust evidence that tournament-based incentives are positively related to cash holdings and the value of cash. Moreover, the effect of tournament-based incentives on the value of cash is stronger for financially constrained firms. Our evidence indicates that as tournament-based incentives motivate riskier corporate policy choices that lead to not only larger expected shareholder value but also greater cash-flow uncertainty, firms increase cash holdings to cushion potential liquidity shortfalls that may cause underinvestment.

Cash holdings of U.S. firms have increased dramatically since 1980. The purpose of this paper is to build a simple formal model of cash holdings that can explain this and other empirical regularities. Our model is based on the well-known “lemons” problem associated with equity issuance. We show that firms with poor growth opportunities and those with excellent opportunities will not hold excess cash, while firms with opportunities in the middle range will hold excess cash. We derive empirical implications relating excess cash to the extent of asymmetric information, growth opportunities, value of assets in place, and cash holding costs.

The positive cash-return relation, previously found in the USA, is similarly present in international Europe, Australasia, and the Far East (EAFE) markets over the sample period 1990–2016. Across the 20 developed non-U.S. equity markets, high-cash firms outperform low-cash firms on average by 4.2% per year after controlling for firm size, book-to-market, momentum, operating profitability, and investment. Though the observed cash premium varies with the firm’s level of debt, a rational risk-based pricing view falls short of fully understanding the effect. Instead, the observed cash premium reflects price corrections arising from the reversal of investors’ expectation errors concerning the impact of cash on the firm’s future performance and is therefore the outcome of mispricing.

Kadioglu, Eyup/0000-0001-7836-868X WOS:000425013300004 This study tests the validity of the free cash flow hypothesis in the context of firms traded on Borsa Istanbul. The study applies a panel regression to a data set composed of 1267 observations from 227 companies during the period 2008-2014. The results reveal a significant, negative correlation between dividends per share and free cash flow. Likewise, a significant, inverse relationship is found between leverage and free cash flow. Thus, the results support the free cash flow hypothesis. Copyright (C) 2017, Borsa Istanbul Anonim Sirketi. Production and hosting by Elsevier B.V. This is an open access article under the CC BY-NC-ND license

This paper aims to examine the effect of cash holding on firm value in Indonesia. This study tested empirically for the existence of a linear relationship between cash holding and firm value. Then the study examines whether or not a quadratic relationship exists. A total of 115 manufacturing firms listed on the Indonesia Stock Exchange from 2010 to 2014 were examined. This study employs panel regression with fixed effect model. The results show that a linear relationship exists between cash holding and firm value. However, a quadratic relationship does not appear between cash holding and firm value of Indonesian manufacturing firms. Thus, the result of this study supports pecking order theory

Previously, the main objective of a company was to maximize profits. Today, however, value orientation is changing and companies have shifted focus towards maximizing their value. Company value is an important management tool, as it is a comprehensive evaluation which may affect competitiveness and achieve progress. To determine the value, it is necessary to know the economic indicators of the company, its market position, organizational structure, etc. Besides quantitative factors, macroeconomic indicators and incalculable factors are also important. The value of the company depends on the uniqueness and quality of the offered product, the company's market, the level of cost control, efficient use of resources, etc. The value of the company also affects, for example, human capital, information systems, environmental management and innovation. The total value is not only the sum of the values of individual assets. The total value at the end of the planning period should be higher than the current value. It needs to be assessed, for example, in cases of selling or buying, the entry of new shareholders, merger, inheritance, liquidation and the entry of a new partner. There are a number of methodological approaches to determining the value of the company - the accounting method, substance method, income methods, methods of exchange appreciation and combined methods. The article also deals with the theoretical description and mathematical basis of the techniques of free cash flow to the firm and free cash flow to equity. This is a theoretical paper which aims to describe the value of a company and the possible methods for its determination.

The purpose of this study to determine the effect of operating cash flow to the abnormal return and the effect of operating cash flow to the abnormal return of companies that conduct the revaluation is higher than that of non revaluation which adopted SFAS No. 16 (2012). The analysis used in this study are multiple regression, for the period 2012-2015. The results showed that operating cash flow has no effect on non-sampled companies revaluation, while the sample of firms that perform revaluation proves that operating cash flow has a positive and significant impact on the abnormal return. Moreover, the effect of revaluation policy can strengthen the influence between operating cash flow to the firm abnormal return than non revaluation.DOI: 10.15408/etk.v16i1.4820

This paper aims to predict the future profitability of a firm using the life cycle theory based on the cash flow statement. In this study, changes in return on net operating assets were considered as a dependent variable. The profitability factors were independent variables and the risk factors were used as a control variable in order to examine the prediction of the future profitability. The statistical samples were classified into the stages of introduction, growth, maturity, shake-out and decline by using cash flow patterns. The results of 1,123 (firms - years) over the time period of 2002 and 2011 showed that the return of the net operating assets, their variations and changes in the asset turnover at different stages of the life cycle have an impact on the future profitability of the firms.

The objective of this research is to test the impact of earnings, operating cash flow and asset growth to firm’s stock return which listed in LQ 45 index in Indonesian for 2009-2011. The result of this research is earnings, operating cash flow and asset growth have not significant effect to stock return both when those variabels is tested separately or silmutaneously. This result show that earnings, operating cash flow and asset growth are not only the one to be the basis of consideration for investor to make investment to get the stock return. Therefore, for making investment, investor should consider other factors which effect the firm’s stock return as macro economics and politics. Furthermore, from this result, be expected an improvement of quality financial statement which addopted IFRS.Keyword: Earnings, Operating Cash Flow, Asset Growth, Stock Return.

This paper analyses the relationship between cash holdings and performance, considering the moderating effect of corruption that exists in the institutional context in which firms operate. The results show the importance of corruption in shaping the sign and the intensity of the value of cash holdings. The sign of the effect of corporate liquidity on firm performance changes according to varying levels of corruption. Holding cash is shown to have a noteworthy and no marginal role in supporting business activities and points to an avenue of investigation for future research.

Electronization of banking services is a strong reason for relative growth of cashless payments. The importance of cash, i.e., banknotes and coins, for realizing transactions should decrease. An analysis for the Czech Republic in the period 2003–2015 confirms this. Demand of nonbank entities for cash is associated mainly with liquidity, banks’ credibility and technological sophistication. Illegal transactions also form part of the demand. Zero return on cash counteracts demand, but it has little meaning with the decline in interest rates on bank deposits. The total stock of cash in the analyzed period rises, but its relative importance declines. Demand deposits are also liquid assets of households and enterprises. Cash compared with demand deposits clearly confirms the declining importance. Its share was the highest in 2004, at 30 %. It fell to less than 18 % in 2015. We found a similar tendency in the comparison of cash with other variables. Barring unforeseen circumstances such as complete collapse of computer networks or severe banking crisis, the author assumes that the relative importance of cash must decline in the long term. Some theoretical aspects of cash and cashless money are also discussed.

This article aims at examining the financial determinants of corporate cash holdings. The study employs panel data regression method. It uses the fixed-effects method based on Hausman test results for the estimation of panel data model. This study has implications that are beneficial for the business managers to have a better understanding and appreciation of the role and importance of the determinants of corporate cash holdings in formulating and evaluating the corporate financial policies. The results of the study indicate a strong positive relationship between cash holdings and cash flow, dividend payment, market-to-book ratio, net debt issuance and net equity issuance of the sample firms. It is also found that the cash holdings of these firms are negatively affected by net working capital, leverage, research and development expenditure as well as capital expenditure of the firm. The article will help researchers as well as managers to understand as to what motivates the firms to hold cash, given the fact that despite being often termed as a non-earning asset, firms generally hold more cash than their normal working capital requirement.

Teuer Furniture is a privately owned, moderately sized chain of upscale home furnishing showrooms in the United States. The firm survived the economic recession and by the end of 2012, it has regained its financial footing. Now that the firm is more secure financially, some of its long-term investors have asked to cash out their investments. This will be the first time that Teuer has repurchased its equity; the company has paid dividends since 2009. Chief financial officer Jennifer Jerabek and her team have been given the task of valuing Teuer using a discounted cash flow approach. The discount rate is given in the case, and the students need to build a pro forma income statement, balance sheet, and cash flow statement and then calculate a per-share value for Teuer. Estimate firm value using a discounted cash flow approach Construct firm-level estimates of the pro forma income statement, balance sheet, and cash flow from assets based on store-level estimates Recognize how forecasts of revenues, costs, and capital investment are constructed, how the individual estimates relate to each other, and how the forecasts depend upon the underlying economics of the business Evaluate and defend the validity of the firm’s forecasts and the valuation model

Although various income statement–based measures predict the cross section of stock returns, direct method cash flow measures have even stronger predictive power. We transform indirect method cash flow statements into disaggregated and more direct estimates of cash flows from operations and other sources and form portfolios on the basis of these measures. Stocks in the highest-cash-flow decile outperform those in the lowest by over 10% annually (risk adjusted). Our results are robust to investment horizons and across risk factors and sector controls. We also show that, in addition to operating cash flow information, cash taxes and capital expenditures provide incremental predictive power.

In this study, we aimed to analyse the empirical determinants of cash holdings on the sample of non-financial companies operating in the Republic of Serbia. For that purpose, dynamic panel data models were estimated by utilising the generalised method of moments for the period from 2008 to 2013. The econometric analysis indicates that companies with higher cash flow hold more cash in their assets. Larger companies as well as companies with more liquid assets and higher turnover coefficients tend to reduce their cash levels. According to the results, companies operating in the Republic of Serbia tend to hold the optimal level of cash and prefer internal sources of financing, which is in line with the principles of trade-off theory and pecking order theory.

As an important external governance mechanism, product market competition has considerable impact on the marginal value of a company’s cash holdings in various aspects. This paper examines the impact of predatory risk on the marginal value of cash holdings in product market by sampling Chinese A-share listed companies from 2000 to 2013. It shows that the predation risk in the product market increases the marginal value of cash holdings by 0.2 Yuan.

This study aims at testing the relationship between inflation and the cash holdings. Moreover, the existence and the direction of the relationship between operating cycle and cash holdings have also been examined. To this aim, two hypotheses have been developed. The first hypothesis has investigated the shifting of the relationship between inflation and cash holdings of the companies at a certain level of inflation and the second hypothesis has investigated the change the direction between operating cycle and cash holdings in companies at a certain level of operational cycle. To test the hypothesis, using systematic elimination method, a sample of 77 companies, including the companies listed in Tehran Stock Exchange during 2003 to 2013 were selected and multivariate regression model was used to analyze the data. Hypotheses test results showed that the relationship between inflation and cash holdings was reverse at a certain level and from that level on, it shifted direction and this was a direct relationship. On the other hand, the relationship between operating cycle and cash holdings was reversed to a certain degree and from that level on it changed direction and this relationship became direct.

Cash holding strategy is one of the most important factors that firm should take into account to prevent additional charges. On this account, firms should pay heed to those factors that influence cash holding. For this purpose, in this research, the influence of inflation and operating cycle on the level of cash holding in firms is surveyed. The statistical population of this paper include all of the accepted corporations in the Tehran Stock exchange, from which 132 corporations, operating from 2007 to 2014 have been chosen. To achieve the goal of this research, 4 hypotheses have been proposed. The results obtained from the research’s hypotheses test which uses non-linear regression model, suggests that there is no significant relationship between the inflation and the amount of cash holding, whereas there is a negative and significant relationship between the operating cycle and the amount of cash holding which in case when the operating cycle reaches a specific level will change into a positive relationship.

We study the liquidity properties of private equity cash flows using data from 837 buyout and venture capital funds from 1984 to 2010. Most cash flow variation at a point in time is diversifiable — either idiosyncratic to a given fund or explained by the fund’s age. Both capital calls and distributions also have a procyclical systematic component. Distributions are more sensitive than calls, implying procyclical aggregate net cash flows. A consequence is that the well-known finding that funds raised in hot markets underperform in absolute terms is sharply attenuated when comparing to public equities. Consistent with a liquidity premium for calling capital in bad times, we find that funds with a relatively high propensity to do so perform better in both absolute and relative terms. Venture capital cash flows and performance are considerably more cyclical than buyout, and the links between cyclical cash flows and performance are likewise stronger.

In this study, we propose an optimal cash holding model which examines the tradeoff between illiquidity and opportunity cost concerns as the benchmark to determine corporate excess cash. Through an optimization process, the optimal cash holdings suggested by our illiquidity–opportunity tradeoff model (IOT model) are endogenously determined. Different from many prior studies, the IOT model not only contains the value of cash, through market-based conception, but also adopts the modified Black–Scholes–Merton default probability of illiquidity. We then compare the IOT model with the Opler et al. (J Financ Econ 52(1):3–46, 1999) model (the OPSW model), which is a widely-used benchmark to determine excess cash, by using data for U.S. public firms from 1984 to 2014. The empirical results show that with regard to financial management the IOT model could be a better alternative to determine excess cash, even in light of different corporate characteristics and performance measures. Our conclusion suggests that while exploiting the value of marginal cash has attracted the attention of many recent studies, exploring the issue of optimal cash holdings is still important in the literature.

During a recession firms face a dilemma between investing cash to take advantage of emerging opportunities and holding cash to buffer against the crisis. Given this tension, we ask: Is cash king during a recession? Using a sample of publicly traded manufacturing firms between 2004 and 2010, we use peer cash holdings to instrument for cash and examine whether the curvilinear relationship between cash and stock market performance (Tobin's Q) changes during the economic crisis. We find that the before-recession benefits of cash decline at very high levels of cash holdings (.9 of total assets), whereas the during-recession benefits begin to decline at medium levels of cash holdings (.4 of total assets). Our results reveal that the nature of the curvilinear relationship between cash and market performance shifts from a diminishing returns curve before-recession to a more pronounced inverse U-shaped relationship during-recession.

This empirical research examines the effect of family control on firms' cash holding policy. Using a sample of Western European firms, we confirm the precautionary motive for holding cash as family-controlled firms' desire to perpetuate the family legacy for future generations motivates them to accumulate more cash than their non-family counterparts. We also show that, given family-controlled firms' long-term perspective, they focus on cash flow volatility rather than cash flow level. Finally, the relation between financing constraints and cash holdings is not homogeneous: financially constrained family-controlled firms hold higher levels of cash than financially constrained non-family firms. Overall, these results suggest that family firms' cash holding policy is the result not of a specific financial outcome but rather on the strategic objectives of the firm. [ABSTRACT FROM AUTHOR]

This paper empirically investigates how improvement in financial cash flows affects firms' research and development (R&D) investment using a sample of Japanese manufacturing firms where firms substantially increased cash holdings and reduced outstanding debt. We find that R&D–cash flow sensitivity among financially constrained firms is larger for financial cash flows than for operating cash flows. We also find that among financial cash flows, income gains/losses rather than capital gains/losses significantly affect R&D. These results suggest that improvement in financial cash flows enhance R&D investment by improving the predictable components of cash flows. Furthermore, the results show that decreases in interest payments, rather than increases in interest and dividends income, enhance R&D.

In the recent years, Chinese energy firms have accumulated significant free cash flows due to higher energy prices and government subsidies and also have invested heavily. An important empirical question is whether the Chinese energy firms tend to misallocate resources due to growing free cash flows. In this paper, we test whether they make some sub-optimal investment decisions following the well-established free cash flow problem in the finance literature, originally identified by Jensen (1986) for the US oil sector. Using a dynamic panel model for the period 2001–2012 for the Chinese energy-related public listed firms, we find evidence supporting the free cash flow hypothesis, suggesting overinvestment problems in the Chinese energy sector. In addition, we observe that firm size and corporate governance structure are important determinants of the Chinese energy firms' investment decisions.

Purpose In contrast to earlier studies, the most recent studies on the incremental value relevance of earnings and cash flows from operations find that both earnings and cash flows have incremental value relevance beyond each other. An interesting question that follows is whether these findings hold after controlling the extremity of earnings and cash flows. This study, therefore, aims to examine the incremental value relevance of earnings and cash flows in the following four cases: moderate earnings and moderate cash flows, moderate earnings and extreme cash flows, extreme earnings and moderate cash flows and extreme earnings and extreme cash flows. Design/methodology/approach To evaluate the incremental value relevance (information content) of earnings and cash flows for each of the four cases mentioned above, we examine the statistical significance of the slope coefficients for regression of returns on both unexpected earnings and unexpected cash flows from operations. Findings The results show that (i) both moderate and extreme earnings have incremental value relevance beyond both moderate and extreme cash flows, (ii) moderate cash flows have incremental value relevance beyond both moderate and extreme earnings and (iii) extreme cash flows lack incremental value relevance beyond moderate earnings; however, they (extreme cash flows) have incremental value relevance beyond extreme earnings. These results suggest that earnings and cash flows have incremental value relevance. However, only in cases when cash flows are extreme and earnings are moderate, cash flows do not possess incremental value relevance. In further analysis, we find that the value relevance for cash flows and earnings decreases when they are extreme and transitory. Moreover, the value relevance for cash flows increases when they are moderate (not extreme) and the other competing measure (earnings) is transitory and extreme. Practical implications The results support the idea that earnings and cash flows from operations complement each other in explaining variation in returns. However, when cash flows are extreme and less informative, investors rely more on earnings in firm valuation, especially when earnings are moderate. Because earnings are unlikely to persist to be permanent across the years, these results can be interpreted as indicating that cash flows and earnings information are used jointly by investors. Originality/value In contrast to previous studies, we control for the extremity of earnings and cash flows when evaluating the incremental value relevance of earnings and cash flows from operations.

Corporate managers tend to preserve cash with an expectation of a worse economy while spend cash to exercise growth opportunities with a favorable economic condition. Using three empirical proxies (book-to-market ratio, idiosyncratic volatility and return on asset) in the literature, we extract a real option component of corporate cash holdings, serving both functions of precautionary saving and exercising growth options. Our empirical results show this component, in aggregate, increases when the real GDP declines and decreases when GDP inflates. Also, stocks with returns declining more to a shock to the aggregate real option component of cash holdings earn higher future returns. Moreover, stock returns of firms with higher cash holdings positively comove with the shock to the aggregate real option component, suggesting investors prefer to hold firms with higher cash holdings when the economy is deteriorating.

Given the predominance of family control in most European corporations, understanding how this type of ownership affects firms’ cash holding policy is important. The literature has yet to address this subject satisfactorily; therefore, we outline a way to model how family firms define their cash policy, specifically, the way in which they adjust their cash holding to an optimal level. We base our analysis on trade-off theory and the precautionary motive for holding cash. Our empirical results show that family firms adjust their cash holding level more aggressively than non-family firms, and, therefore, family firms are capable of achieving optimal cash holding faster and more efficiently than non-family firms. Further, we find that family firms have a heterogeneous cash policy; in particular, young family firms, financially constrained family firms, and family firms that operate in countries with strong investor protection adjust their cash holding more aggressively.

Investments with random cash flow streams are much closer to describe the real financial environment of a revenue generating investment than constant cash flow streams .A cash flow stream is considered under risk if at least one of its parameters is a random variable with a given probability distribution. Many models of random cash flows were investigated by researchers. However, this study aims to survey the economic worth of cash flows with random time between equal returns on the initial investment. This study develops criteria for the profitability based on the rate of return of the expected net present worth, and make comparisons to the expected rate of return based on simulations. The concept of moment generating functions of random variables is employed to get the analytic forms of the expectations. This study also considers many possible distributions for the random separating time between returns and supply a sufficient number of numerical examples. The findings show that this financial model applies to apartment buildings, condominiums, shopping malls, and the management of inventory stocks of expensive items.

This study is part of research from corporate governance domain, knowing that one of the major concerns of stakeholders is to identify decisions that ensure adequate control over costs and hence over the risk of cash flow, in order to ensure a high level of performance. The immediate consequence is that the decision to control the risk of cash flow has impact on the market value of the listed companies. In this context, the paper addresses the issue of cash flow risk in terms of leverage, except that the debt service of a company is often a “fixed cost” and the company has a certain level of affordability of this cost. This level of cost affordability for capital is determined by the existence of the free cash flow available for being used in subsequent reimbursement of the borrowed capital. Moreover, since the free cash flow has a certain evolution during the period the capital has to be repaid, the question of maintaining security in the debt service of free cash flow is raised. The objective of this study is achieved using a fuzzy adaptive controller.