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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.

Banks are general means of institutions that deal with money. They provide financial resources for the development of the nation. They collect deposits from the people and lend these resources to people who demand investment. This study aims to evaluate and compare cash flows of selected two commercial banks. It helps to find out sources and uses of cash to analyze cash flow performance of Himalayan Bank and Global IME Bank limited. Cash flow statement is a statement which states the cash inflows and outflows of cash. A statement of cash flow reports cash receipts and payments classified according to the major activities: operating, investing and financing during the period. In this paper, a comparative study has been undertaken between two banks Global IME Bank limited and Himalayan Bank Limited. This study has been carried out with analytical research design to analyze the cash flow of two banks. Secondary data were used in this study. The cash flow from operating, investing and financing activities is fluctuating trend. It is also found that operating cash flow is positive and financing cash flow is negative in most of the years. In comparison, the cash flow of HBL has more consistency than GIBL. Both banks have positive Net cash flow except few years. Because of the conflict and political instability, the banking sector has also been affected. In banking industry, it seems that operating expenses are increasing year by year. Therefore, commercial banks should pay good attention to the minimization of operating expenses as possible.

This paper examines the impact of a national cash transfer program on labor supply in Iran. In 2011, Iran started monthly deposits of cash into individual accounts covering more than 70 million people and amounting to 28% of the median per capita household income. The payments were compensation for the sudden removal of hefty energy subsidies. The program has been heavily criticized for its disincentive for work, especially for the poor. We use panel data to study the causal effect of the transfers on labor supply using exogenous variation in the time households first started receiving transfers and in the intensity of treatment, which we define as the share of net transfers from the program in total per capita household expenditures. We find no evidence that cash transfers reduced labor supply, in terms of hours worked or labor force participation. To the contrary, we find positive effects on the labor supply of women and self-employed men.

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.

By using panel data from Korean listed firms, we find that unionized firms strategically hold less cash to enhance their bargaining power against labor unions. We also find that unionized firms are likely to reduce the marginal value of their cash holdings, thereby decreasing shareholder value from the agency theory perspective. This finding complements the agency theory argument that managers tend to waste corporate resources by hoarding cash, particularly when faced with increased information asymmetry and financial constraints. Overall, our results suggest that information-related financial constraints and agency problems are likely to co-exist in unionized firms.

By using panel data from Korea’s listed firms, we find that firms with poor earnings quality are more likely to accumulate excess cash holdings, perhaps in an attempt to buffer themselves from information asymmetry problems. We also find that firms with poor earnings quality are more likely to discount the marginal value of their excess cash holdings because their shareholders appear to question the reason for such cash policy changes from the agency theory perspective. Overall, our results suggest that information asymmetry and agency problems are likely to co-exist in firms with poor earnings quality.

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.

In recent years, many studies have emphasized the cost-saving potential of electronic payments. Yet, cash is still heavily used to pay for point-of-sale transactions in many developed economies. We introduce a model of optimal cash holdings and payments that exploits survey payment diaries from Austria, Canada, France, Germany, the Netherlands and the United States. Our results provide evidence that differences in incentives, such as the relative cost of cards compared with cash, and differences in ATM withdrawal costs, are key factors explaining why cash remains top-of-wallet across many developed economies. Indeed, we show that once obtained, cash goes first because it ”burns” in consumers’ wallets.

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.

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.

I examine the relation between aggressive income increasing real activities management (RAM) and corporate cash holdings. Motivated by Jensen's (1986) concerns about free cash flows, I investigate whether aggressive cuts in discretionary expenditures are associated with higher levels and changes of cash holdings. Using empirical models from prior research, I document that aggressive income increasing RAM is associated with higher cash holdings and this positive association is stronger in weakly governed firms. I also find that weakly governed firms with aggressive income increasing RAM and high levels of cash tend to spend more on future investments, suggesting an effort to reduce accumulated cash and increase real assets under control. My results are robust to endogeneity, additional control variables, and alternative design choices. Evidence in this study provides a link between corporate cash holdings and aggressive cuts in discretionary expenses that allow managers to report higher earnings, indicating that efforts to achieve financial reporting objectives have implications for cash management.

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.

The empirical literature shows that firms overinvest in working capital and that these investments are economically inefficient. We decompose working capital investments in the cash conversion cycle and growth effects in the presence of x-inefficiency. We predict that reductions in the cash conversion cycle should increase shareholder value. Direct evidence follows from a case study of a listed company in Brazil, MRV. Changes in operations reduced CCC from 508 days in 2012 to 351 days in 2015, decreasing working capital requirements by US $1.02 billion. Indirect evidence comes from (1) a synthetic control comparing MRV's free cash flow to equity to its direct and distant competitors; (2) an event study of share prices, and (3) a dynamic cash flow estimation using Tobin's Q as the dependent variable. Outcomes suggest that CCC management, controlling for effects on operating margins, result in higher stock prices and profitability, and increased cash flow. The theoretical framework and results reconcile the literature and provide a rationale for the overinvestment and the inefficiency of working capital investments.

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.

Open-end mutual funds face investor redemptions, but the sale of the underlying assets depends on asset managers’ portfolio decisions. If asset managers use cash holdings as a buffer to meet redemptions, they can mitigate fire sales of the assets. If they hoard cash in response to redemptions, they will amplify fire sales. We present a global game model of investor runs and identify conditions under which asset managers hoard cash. In an empirical investigation of bond mutual funds, we find that cash hoarding is the rule rather than the exception, and that less liquid bond funds display stronger cash hoarding.

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.

We investigate the relation among trapped cash, permanently reinvested earnings, and foreign cash. We define trapped cash as cash and cash equivalents generated by foreign earnings and held by U.S. MNC's foreign subsidiaries due to concerns over repatriation taxes, and explain why trapped cash, permanently reinvested earnings, and foreign cash are not synonymous. We exploit the one-time tax rate reduction on repatriated earnings provided for under the American Jobs Creation Act of 2004 to construct a proxy to identify firms with trapped cash. We find R&D intensity, capital intensity, foreign growth opportunities and tax haven subsidiaries are significant indicators of trapped cash. Interestingly, we find firms with tax haven operations are less likely to have trapped cash. These findings highlight the joint role of tax havens as low-tax jurisdictions and offshore financial hubs. Finally, we investigate the relation between firm value and trapped cash. Controlling for excess cash, we find that trapped cash is negatively related to firm value, but primarily for firms with poor governance. Overall, results suggest that our measure is a parsimonious way to estimate the likelihood of having trapped cash that can be applied to a large sample of firms.

U.S. industrial firms invest heavily in noncash, risky financial assets such as corporate debt, equity, and mortgage-backed securities. Risky assets represent 40% of firms’ financial portfolios, or 6% of total book assets. We present a formal model to assess the optimality of this behavior. Consistent with the model, risky assets are concentrated in financially unconstrained firms holding large financial portfolios, are held by poorly governed firms, and are discounted by 13% to 22% compared to safe assets. We conclude that this activity represents an unregulated asset management industry of more than $1.5 trillion, questioning the traditional boundaries of nonfinancial firms.

Standard setters advocate a balance sheet approach to financial reporting, which views assets and liabilities as primary, and income as just the change in net assets. This paper argues that income is conceptually and practically better described as “adjusted net cash flows,” where the adjustments are the accounting accruals. One proof of that is seen in the existence of whole accounting systems like tax accounting and NIPA accounting, which emphasize the determination of income but have no balance sheets. Another comes from the observation that income drives changes in net assets, and not the other way around. The paper also argues that an income-based approach to financial reporting is better suited to reflect the success of advancing cash to earn more cash, which defines what for-profit entities do. There are two main features of the income-based approach. One is attention on the cash flows as the natural foundation for financial reporting because they are precisely determined, and provide a clear link to firm valuation. The other is attention on the accounting accruals, which serve to adjust the raw cash flows to better show the current success of investing cash to ultimately earn more cash. Specifically, it argues for revenue recognition which is close to current practice, and for expense recognition which is aligned with the matching principle.

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

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.

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.

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.

By examining the relation between the employee welfare index and the choice between lines of credit (LC) and cash holdings, we provide empirical findings consistent with monitored liquidity insurance, agency, and tax theories. There is a negative relation between the LC-to-cash ratio and the employee treatment index, which is more pronounced for firms with large intangible assets. Additionally, this negative relation is observed only in low agency firms, which is consistent with the prediction of agency theory of cash holdings. Firms increase LC to meet future investment opportunities rather than increasing cash holdings when their marginal tax rates are high.

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.

Cashless payments are recent phenomena, which even increased with the introduction of contactless means like NFC, PayPass or payWave. Such new methods speed-up the entire payment process and in comparison to cash transactions are much simpler and faster. But on the other hand the key question for merchant is if it is worth to have such device, which accept these new payment means or not to have the terminal at all. What is the amount of cash flow, which delimits the cash holdings to be still profitable? This paper tries to give answers to such question by presenting general profitability model, which will address defining the cash threshold amount. The aim is to show that cash holdings could be profitable up to certain amount, but after the threshold is met, cashless payment methods are fairly superior despite their additional costs. Keywords: Cashless, Contactless, Card, Fee, Merchant, Payment, Transaction. DOI: https://doi.org/10.18267/j.aip.94

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 this study, we examine a firm’s classification shifting behavior in the statement of cash flows under the IFRS regime. Specifically, we examine the determinants and economic consequences of classification shifting to manage operating cash flows. Based on a sample of firms that mandatorily adopt IFRS in Korea, the result shows that financially distressed firms, firms with high interest payments, firms with high bank ownership, and Chaebol affiliated firms tend to shift their interest payments from operating to financing cash flows, thereby increasing the total amounts of operating cash flows. We also find evidence largely consistent with the view that investors discount operating cash flow surprises from classification shifting. Overall, we provide initial evidence that classification shifting exists in the statement of cash flows under the IFRS regime and its economic consequences are significant.

Due to the financial crisis, an increasing number of households face financial problems. This may lead to an increasing need for monitoring spending and budgets. We demonstrate that both cash and the debit card are perceived as helpful in this respect. We show that, on average, consumers responsible for financial decision making within a household find cash and the debit card equally helpful for monitoring their household finances. Individuals differ in major respects, however. In particular, low earners and the liquidity-constrained prefer cash as a budgeting tool. Finally, we present evidence that at an aggregated level, such preferences strongly affect consumer payment behavior. These findings suggest that the substitution of cash by cards may slow down because of the financial crisis.

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.

The article presents the effects of cash pooling application in a capital group. Calculations made on a mining company data indicate that the group’s companies achieve benefits on interests. Companies with surplus funds achieve higher interests on deposits. Companies recording cash shortages on current accounts pay lower interests on debit in the current account. Cash pooling provides for optimal use of the group’s funds, harmonisation of procedures in the area of financial cooperation, improves the group’s financial liquidity, and reduces the costs of external financing. One must not forget the effect of cash pooling manifested in high flexibility of financial settlements among the companies within the capital group.

We examine the joint choices of cash holdings and debt maturity for a large sample of firms for the 1985–2013 period. We find that there is a positive relation between debt maturity and cash holdings. Our results hold after taking into account endogeneity among leverage, debt maturity, and cash holding. We posit that this positive relationship will be found among firms facing financial constraints and we find support for this hypothesis. Our results are robust after we control for agency problems, international taxation, bank loan liquidity covenants and default risk.

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.

This paper tests (Jensen The American Economic Review, 76, 323–329 1986) free cash flow hypothesis using data on real estate transactions. We find that firms with either higher free cash flow or higher cash reserve pay more fore real estate, which is consistent with the free cash flow hypothesis. We also find that the agency costs of free cash flow associated with real estate transactions are more severe when firms have lower Tobin’s Q. Furthermore, we find that among the commonly used corporate governance measures, only equity compensation is effective in mitigating the agency problem of free cash flow.

Using a panel of 1478 Chinese listed firms over the period 1998–2010, we examine the behavior of corporate cash holdings. Consistent with the trade-off theory, we document that Chinese firms tend to actively manage their cash balances toward a target level. We also observe a considerable heterogeneity in adjustment speeds of cash holdings across firms, due to the presence of different adjustment costs. Specifically, firms with a high level of excess cash, and firms that actively manage their cash balances through investment, dividend payments, and debt issuance, all display higher adjustment speeds. Finally, the institutional setting does not significantly affect adjustment speeds.

Recently, Japanese firms resumed accumulation of cash to the highest cash-holding levels among developed economies. We investigate the cash-saving behavior of these firms over the period 2002–2011, focusing on the firm–bank relationship. We find that the determinants of cash-saving policy are substantially different between bank-dependent firms and firms with access to the bond markets. We document that firm size and research and development intensity significantly determine the cash balances and cash-flow sensitivities of cash for firms that have access to the bond markets; however, this is not the case for bank-dependent firms. Furthermore, the effects of these variables become larger after the 2008 financial crisis only for firms with access to the bond markets. These results suggest that bank-dependent firms do not determine their cash-saving policies based on precautionary demands for cash.

We find that, on average, firms close 31% of their gap between target and actual cash ratio each year. The adjustment speed is generally swifter if the actual cash ratio exceeds the target ratio, possibly because it is cheaper to disgorge cash than it is to raise it. But as firms become more insulated from the threat of takeovers, they decelerate their cash adjustment at high cash ratios. This evidence suggests that self-interested managers are reluctant to disburse excess cash, and they will allow cash levels to remain high unless the firms are subject to external pressure.

Cash flow and leverage are two main components of any business firms. A good level of cash flow and leverage shows a desirable performance for business organizations. This paper presents an empirical investigation to study the relationship between combined leverage and cash flow in terms of board of director’s ownership and corporate governance structures. The study selects 86 randomly selected firms listed on Tehran Stock Exchange over the period 2009-2013. Using some statistical tests, the survey has indicated that there was a meaningful relationship between leverage and cash flow for firms with different corporate governance structures. The study has also determined that there was a meaningful relationship between leverage and cash flow for firms with different board of director’s ownerships.

We examine auditor business risk by analyzing the relation between excess cash holdings and auditor pricing behavior. Prior research links excess cash holdings to risks associated with manager opportunism and external monitoring. Our analyses provide evidence of a positive relationship between excess cash and audit fees. The economic magnitude of the increase in total audit fees due to an increase in excess cash holdings is approximately 5% greater for firms in the top quartile of excess cash holdings versus those in the bottom quartile. We also find that the strength of shareholder rights reduces the positive relationship between excess cash and audit fees, and excess cash holdings are assigned lower audit fees among firms that follow an investment-intensive strategy than those that tend to hold on to their cash. Our article contributes to the literature by examining auditor pricing of excess cash holdings, including factors that affect auditors’ risk perceptions, and ultimately provides unique insights into how auditors view agency conflicts indicated by excess cash holdings.

Are cash payments, in any post-industrial economy, only a barbarous relic of the past? And should they be replaced by dematerialized payment methods? According to our analysis, cash represents a natural drive towards economic dynamism and growth. From a behavioural standpoint, resources hold in cash entail reassuring components, which have ancestral origins and cannot be eliminated by law. That notwithstanding, in several European countries a clear tendency has emerged towards imposing a limit to the use of cash, based on the supposition that it may reduce capital flight and tax fraud. Not only are these cash acceptance thresholds – mostly introduced around the crisis year 2012 – likely to have detrimental repercussions on consumption as well as GDP growth levels, but they may also cause panic waves in times of economic uncertainty. These outcomes seem particularly probable given the imperfect replaceability of cash by other payment alternatives. In addition, inadequate communication by policymak...