Cash Accumulation Research Articles

Navigating cash management: The role of board co-option

This study examines the impact of board co-option on cash holdings in Chinese listed firms. The results show that co-opted directors significantly increase corporate cash reserves. This effect is particularly strong in state-owned enterprises (SOEs), where co-opted boards further amplify cash accumulation. However, financial constraints attenuate this relationship. Moreover, the increase in cash reserves associated with board co-option is partially driven by enhanced firm profitability, highlighting its mediating role. These findings offer new insights into the governance mechanisms influencing cash management in China.

Family control, agency conflicts, corporate cash holdings and firm value

PurposeThis paper examines whether family control exerts any influence on corporate cash holdings in Indian listed firms. It also examines how this accumulated cash of family firms impacts firm value.Design/methodology/approachThe study uses dynamic panel data regression estimated using two-step system generalized method of moments (GMM) on S&P BSE 500 firms during 2009–2018 for testing the repercussions of family control on the cash levels of a firm. Further, fixed effects regression has been employed for the valuation analysis.FindingsEstimation results showed that family control negatively impacts cash holdings in Indian firms. Further, the cash accumulation by family firms adversely affects the market valuation of the firm. These findings signal a principal–principal (P-P) agency conflict in Indian family firms, i.e. friction between family owners and minority shareholders' interests. Minority shareholders fear that a part of the cash reserves will be used by family members for personal benefits. Thus, they discount cash reserves in family firms.Originality/valueThe study adds to the determinants of corporate cash holdings in emerging markets. To the best of the authors’ knowledge, this is the first study from India investigating family control as a determinant of cash policy. It sheds light on the P-P agency conflict in Indian family firms. P-P agency conflict is less researched in cash holdings literature as opposed to the principal–agent managerial disputes. Also, the study uses a more comprehensive definition of family control rather than just considering the ownership as used in prior cash holding research.

Cash Balance Management in Innovative Companies

Since the 1980s, innovative companies all over the world have been holding a substantial cash balance on their books dueto transactional, preventive, agency, tax-related and macroeconomic motives and by limitations in capital availability dueto information asymmetry. Our research examines the determinants that influence the analysis of cash holdings of hightechand non-high-tech companies.
 Financial information for 38,386 unique companies was obtained from the 2009–2017 Compustat database. The final sampleversion comprised 12,083 companies, of which 2,909 were innovative. We used the panel regression method, selectingthe appropriate calculation model and a number of proxy variables.
 Our research confirmed the existence of innovative companies’ significant cash holdings. Adding a macroeconomic factorvariable (GDP growth) to the research model was justified for innovative companies only. In spite of the insignificant impactof GDP, increased GDP growth resulted in a decreased cash ratio for innovative companies. The authors also revealthe insignificance of R&D expenditures for innovative companies and prove that ranking companies by the amount ofR&D expenditures and using this variable as innovation proxy was inexpedient. In addition, the authors confirm a positiverelationship between growth opportunities, company size and cash ratio and a negative relationship between dividendpayout and the amount of cash holdings.
 An understanding of the reasons for cash accumulation facilitates prudential management of cash holdings in companies.This paper contributes new evidence to the study of corporate cash holding, focusing specifically on innovative companies,which have not been examined separately in the past.

Use of A Deterministic Cash Flow Model To Support Manager Decisions

The aim of the article is to analyze the influence of certain types of cash flows (from operating, investing, and financing activities) on the change in cash balances, i.e. total cash flows in economic entities. The article uses a deterministic cash flow model based on the formula of the cash flow statement according to which the total cash flow, i.e. net change in cash, is the sum of the operating cash flows, investment income minus investment expenditure, increased by financial income and reduced by financial expenditure. The results of the research indicate that Polish listed companies that are subject to the research are characterized by positive operating cash flow, low capital expenditures and low financial inflows in the years 2009-2019. A contribution to the theories and practice is the broadening of knowledge in finance theory on cash resources, which were confirmed by research and conclusions concerning the analysis of Polish joint-stock companies in the emerging market. The study indicates substantial cash accumulation, low use of external financing, i.e., high financial flexibility. The deterministic model of cash flows presented and used in the article is to support managerial decisions. The analyzed model may constitute the basis for building an IT system that could be used to manage the finances of enterprises. The system will use cash data, which is an important and better source of information than accrual data.

Innovative firms’ cash holdings, tax policies, and institutional environments

AbstractBased on 21,653 innovative firms from 61 non‐U.S. economies, we find a positive relationship between a firm's innovativeness and cash holdings. This relationship is stronger after the implementation of patent boxes that provide preferential tax treatment for patent income. Moreover, innovative multinationals facing higher repatriation taxes accumulate higher total cash holdings. The positive innovativeness–cash relationship varies with institutional environments and is more pronounced in countries with higher R&D tax credits, less developed financial markets, better governance, stronger shareholder rights, more technicians, better infrastructure, greater investment freedom, and in industries with fiercer competition and longer innovation cycles. Innovative firms with higher cash holdings invest more in R&D and generate more patents. Overall, our findings provide insights into the driving forces underlying the large cash accumulation in innovative firms worldwide.

Η Λειτουργική και Οικονομική Κατάσταση των Δημόσιων Νοσοκομείων κατά την Πενταετία 2014 - 2018, Βάσει των Δημοσιευμένων Οικονομικών Καταστάσεων

Introduction: Financial statements of public hospitals provide information to those who have a reasonable interest in their financial position and performance (e.g. the Parliament, the Regional Health Authorities, the Ministry of Health, the taxpayers, the suppliers, etc.). The information provided is useful to users for accountability purposes and decision making. Purpose: The purpose of this study is to investigate the preparation of audited financial statements, the bench- marking of key operational and financial figures, the analysis of financial figures with cost indicators and the qualitative analysis of certified public accountants’ (CPAs) audit reports. Methodology: The audited Financial Statements as well as yearly hospital activity data from Business Intelligence (B.I.) Platform were collected and processed. The quantitative data characterizing operational and financial perfor- mance of public hospitals were compared, through time-series analysis. Results: The analysis demonstrates key financial figures for the period from 2014 until 2018 namely receivables, cash and cash equivalents, short-term liabilities, operating income, operating expenses and net profit or loss. More- over, bed occupancy rate, cost per inpatient and cost per inpatient day are calculated at both hospital and health region level. Conclusions: The analysis provides useful information about operational and financial performance of public hospitals. Many hospitals lack timeliness, due to unpublished annual financial reports. Cash accumulation and decline in short-term liabilities were observed, while in total the operating income is higher than the operating expenditure of public hospitals. The financials are fairly presented with the exception of some specified areas. Suggestions are made for improvement and speculating on future directions.

Does Cash Hoarding Represent Excessive Conservatism or Opportunism of CEOs in pre-and post- crisis of 2008?

The aim of this paper is to define and isolate the drivers of speculative cash hoarding phenomena in publicly traded non-financial American firms before and after the financial crisis of 2008. The model presented in this paper uses previous literature defined drivers of transaction and precautionary motives for holding cash as control variables, and introduces new measures for market endorsement and economic conditions, that were never used before in this context. Empirical results show that cash accumulation is prominent among profitable firms, and that cash accumulation in excess of ongoing and precautionary needs of companies was endorsed by the financial markets both before and after the financial crisis of 2008. Results also support previous findings that financially unconstrained firms have a lesser need for market endorsement for cash hoarding. The contribution of this paper to the body of literature related to cash management and cash hoarding is five-fold: (i) it provides empirical evidence of market-endorsed cash hoarding in the US non-financial companies; (ii) it extends the existing models of transaction-related cash holdings to include, formally define and test the drivers of precautionary cash accumulation in the non-financial sector; (iii) it formally defines and tests a metric for market sentiment related to cash hoarding before and after the financial crisis of 2008; (iv) provides empirical evidence that the crisis of 2008 was anticipated by the corporate sector as early as 2005, and recovery from the crisis was predicted as early as Q2:08; and (v) defines and quantifies the border separating the precautionary and speculative motives for cash accumulation.

Financialized savings in public water governance: An illustrative case study in the arid American West

AbstractHow does financialization of the economy impact public governance of natural resources? One way includes a shift in how savings and cash accumulation are understood and practiced within public agencies. This article proffers that in the second half of the twentieth century, it became a taken-for-granted understanding that long-term savings should be held in financial investment accounts instead of traditional savings accounts. As a result of this, municipal organizations act as fiscally independent investors, marshaling economic resources to pursue strategic objectives that align with financialized institutional logics. Using a case study of the largest supplier of drinking water in the US, this article examines how the use of financial investments by a major public resource agency, Metropolitan Water District of Southern California, evolved since first establishing an investment policy in the 1940s. Today, this organization maintains investments worth over one billion dollars. Analysis of archival documents suggests that financial activities, even if yielding dwindling returns over time, are counted upon as a source of revenue, deployed to obtain favorable bond ratings, used for access to earmarked funds, and leveraged to acquire land in water-strategic locations. Considering the ubiquity of these financial practices among medium to large-sized municipal governing bodies, the results of this study are suggestive and generalizable across substantive governing fields and in other locations. Ultimately, this study shows that public governance agencies are intertwined with private capital flows, problematizing the oft-assumed distance between public and private actors. The article also interrogates the influence that financial markets have over of public policy, showing that elected governance officials engage in the commodification of money, encouraging the further commodification of environmental resources.

The nonmonotonicity of cash-cash flow relationship: the role of uncertainty and financing constraints

Relying on panel firm-level data from an emerging economy, the paper postulates and empirically verifies the pattern of a U-shaped relationship between cash flows and cash holdings. The positive cash-cash flow sensitivity is postulated to be driven by precautionary motive, which is engendered by excessive volatility of cash flows. Therefore, cash accumulation appears to serve the primary purpose of mitigating the problem of unpredictability of cash flows. While revealing no significant cash-cash flow relationship for the majority of firms, the analysis of firm-level cash-cash flow sensitivity coefficients shows that the companies with the lowest and the highest cash flows maintain disproportionately higher cash reserves than their counterparts with intermediate cash flows. The firms exhibiting negative cash-cash flow relationship are found to be of younger age, smaller size, lower liquidity, and asset tangibility than the remainder of the research sample. These firms are evidenced to accumulate cash reserves from equity issuances, while their overall capacity to procure external financing remains impaired. Their financing patterns are reminiscent of the agency problem of ‘gambling for resurrection’. In turn, the firms exhibiting positive cash-cash flow sensitivity are documented to maintain cash reserves in order to be able to alleviate cash flow volatility.

Cash Accumulation by Non Financial Corporations: New Evidence of the Role of Hedging Needs and Lower Financing Costs in France

Cet article examine les sources de l’accumulation de liquidites par les societes non financieres en France. Nous explorons notamment des explications par les couts, en proposant une mesure du cout de detention de liquidites specifique a l’entreprise, qui depend a la fois des couts de financement a court terme des entreprises et de la part des actifs financiers liquides qui generent des interets. L’analyse suggere qu’au moins un quart de la hausse de la tresorerie a l’actif des entreprises entre 2011 et 2016 decoule d’une tendance a la baisse du cout de detention de ces liquidites. En integrant l’impact supplementaire des evolutions macroeconomiques, l’explication par les couts rend compte de pres de 40 % de la hausse de la tresorerie. On identifie egalement que les entreprises conservent des liquidites afin de pouvoir exploiter de futures opportunites d’investissement, quelles que soient les conditions financieres lorsqu’elles se presenteront. Nos resultats suggerent que l’accumulation de liquidites par les entreprises dans le but de se premunir contre le risque de manquer des opportunites d’investissement en periode de ralentissement est un stabilisateur economique.

The rise of domestic capital markets for corporate financing: Lessons from East Asia

Firms from emerging economies have significantly increased the amount of bond financing, particularly after the Global Financial Crisis and when compared to other financing instruments. The literature links this growth to a rise in international bond issuances as the supply of capital by foreign investors expanded. This paper explores the role of domestic markets by comparing domestic and international bond issuances by East Asian firms, which are the most active bond issuers in emerging economies. The paper shows that an expansion in domestic bond issuances, in domestic currency, by more and smaller firms was the main component behind the overall growth in bond financing. This expansion was accompanied by a decline in bond yields, higher firm leverage, and higher cash accumulation following issuances after 2008. The evidence is consistent with a higher supply of funds by domestic investors being an important driver behind the rise in domestic bond financing.

Extreme Stock Market Performers, Part III: What are their Observable Characteristics?

Firms with the best decade-horizon shareholder outcomes differ substantially on average from other firms in terms of characteristics that can be observed and objectively measured during the same decade. Most notably, top-performing firms have rapid asset growth, and in particular have strong cash accumulation. Top-performing firms are more profitable on average, despite higher R&D spending. Top performing firms in terms of accumulated rates of return tend to be younger and have more volatile returns as compared to more ordinary firms, while top performing firms in terms of dollar shareholder wealth creation tend to be older and do not have particularly volatile returns. The skewness of monthly returns does not have significant explanatory power for which firms have extremely strong decade-horizon outcomes.

Personal Taxes and Corporate Cash Holdings

Dividends are taxed at the personal level, but injecting funds into firms does not offer the symmetric tax benefit. Hence, there is a personal tax saving incentive to retain cash in the firm. We develop a corporate finance model of liquidity management, in which the firm’s liquidity policy trades off precaution and saved personal taxes against agency and corporate tax costs. The model implies that the tax saving motive is substantial and increasing with the dividend tax rate. Consistent with the model, we show empirically that, after the 2003 dividend tax cut, affected firms reduced their cash accumulation.

Corporate Investment and Financing over the Industry Business Cycle

How do firms vary their capital investment and financing policies in response to business cycle fluctuations within their industry? To address this question, we use the regime-switching approach to compute the quarterly time-series of the probability of a future industry downturn for industry groups within the U.S. manufacturing sector. After controlling for the aggregate business cycle, we find that firm-level capital investment and debt issuance are procyclical, whereas net equity issuance and cash accumulation are countercyclical over the industry business cycle. However, there is substantial heterogeneity across firms based on size and credit rating. The effects of the industry business cycle are often larger than that of the aggregate business cycle, and including the former in the analysis changes the relationships between firm-level financing policies and aggregate business cycle documented in previous studies. We show that extending the standard dynamic trade-off model to incorporate heterogeneous effects of industry and aggregate business cycles can help explain the empirical findings.

Corporate cash holding during crisis and beyond: what matters the most

PurposeThe purpose of this paper is to examine the cash holding of firms during a crisis and test the widely accepted determinants of corporate cash holding (CCH) for their consistency across periods of crisis, stability and recovery, and across firm categories, in the emerging market context of India.Design/methodology/approachThe study employs panel data and Fama–Macbeth regression techniques on publicly listed firms during 2001–2015, amid controls for idiosyncratic factors. Further empirical analysis is carried out through the disaggregation of firms based on group affiliation, controlling stake of promoters, financial constraints and firm size.FindingsThe study reports that cash levels are significantly higher during crisis periods for Indian firms. Moreover, promoter holding is observed to be a strong predictor of CCH, which is an addition to the list of predictors in existing literature. Additionally, most of the predictors of cash holding turn out to be consistent through periods of financial crisis, stability and recovery. A firm’s age and growth prospects do not determine cash levels for Indian firms; however, cash-flow volatility, firm size, leverage and non-cash working capital requirements help to determine the cash levels of the firm consistently through different periods. Group-affiliated firms are less likely to engage in cash accumulation as opposed to firms that are large and financially constrained and have high promoter stakes.Originality/valueThe study is unique because it examines the consistency of determinants of cash holding across good and turbulent times and across firm classifications. Moreover, the study uses a broad sample of firms and investigates the topic for a relatively long period in an emerging market setup.

THE ROLE AND PLACE OF FINANCIAL RESOURCES FOR THE DEVELOPMENT OF REGIONS

The subject of the study. Financial support for the competitive development of the country’s economy is gaining important meaning nowadays. There is determined the necessity of adapting the country’s financial system to the European integration priorities of the development and solving the problem issues in the field of attracting financial resources by combining sources of their inflow to improve the efficiency of financial potential management of the country and its regions. The differentiation of regional development is the basis for monitoring the components of sustainable development, including the financial component, in order to further take into account territorial features in the process of the formation of financial resources of the regions. Methodology. In the course of the research, based on the synthesis of scientific approaches, an actual vision of the treatment of financial potential is formulated, determined by the aggregate of resource support, in particular, the real and potentially available financial resources, as well as the capabilities of the country, including organizational, managerial, functional, infrastructural, and adaptive for the accumulation of financial resources, their transformation into productive financial capital, its redistribution between economic entities and its use of capital to provide the sustainable development of the country and its regions. Aim. It is to explore the structure of the financial potential of the country and its regions, under the influence of transformational changes in the economy, where new elements appear. To generalize the development of foreign economic activity, which makes it possible to include in the composition of possible financial resources of the state and its separate regions a whole group of financial resources that are of external origin, in particular, loans from the International Monetary Fund, the European Bank for Reconstruction and Development, investments in free economic zones and territories priority development, borrowing from international financial markets, technical assistance from foreign non-government financial institutions. Conclusions of the study. It should be noted that nowadays, when the financial potential of the regions of the country is formed not only at the expense of budgetary funds, together with the state both the private sector and the population appear as business entities. It is emphasized that the priority in determining the sources that form the financial potential is their territorial membership, within which there are cash accumulation of incomes, economic entities and the population as a result of their production and economic activity, and attracted funds from the side that are concentrated in the respective funds for ensuring the continuity of extended reproduction and satisfying other social needs. A prerequisite for ensuring balanced development of the country and its regions is the sufficiency of financial resources in order to fulfil the functions entrusted to state authorities and local self-government bodies. At the same time, the management of the economic development of the country will take a qualitatively new innovative level, where each member of the territorial community will become a full and active participant in economic relations based on the principles of participation and solidarity in the region, as well as in the country as a whole.

U.S. multinationals and cash holdings

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%.

To What Extent Are Savings–Cash Flow Sensitivities Informative to Test for Capital Market Imperfections?*

We construct a simple model with lumpy investment, cash accumulation and costly external finance. Based on this model, we propose a new savings specification aimed at examining savings behavior in the presence of investment lumpiness and financial constraints. We then test a key prediction of our model, namely, that under costly external finance, savings-cash flow sensitivities vary significantly by investment regime. We make use of a panel of firms from transition and developed economies to estimate the new savings regression which controls for investment spikes and periods of inactivity. Our findings confirm the validity of the model's prediction.

STRATEGIC DECISIONS OF FAMILY FIRMS ON CASH ACCUMULATION

ABSTRACTGiven the particular strengths, weaknesses, and peculiarities of family firms as well as the importance of liquidity in today’s marketplace, we analyze the distinct characteristics and strategies of family businesses related to the amount of cash a firm holds. We look beyond the traditional factors that influence decisions related to cash management to examine factors that are particularly important for family firms. Specifically, we outline the relevance of strategic decisions guided by family firms’ conservatism, flexibility, long-term view, and the active control that they have over family members. To our knowledge, no prior studies exist regarding family firms and their strategic adjustment of cash holding. Therefore, we investigate whether the ownership structure of the firm (through the presence of a controlling family) moderates decisions on cash holding. We found that family firms tend to accumulate cash for strategic reasons and as a result of their own idiosyncrasies. Thus, family firms can achieve optimal cash accumulation more efficiently than non-family firms.

Measuring Excess Cash Balance and Studying its Relationship with Stock Return in Companies Accepted in Tehran Stock Exchange

Goal of cash management is to limit cash levels in the company and maximize stock return. Cash should be kept at a level which makes balance between cash holding cost and insufficient cash cost. The present research studied the relationship between characteristics of companies and their cash holding. Excess cash amount was measured using regression model and its relationship with stock return of companies was analyzed. Statistical population included the companies accepted in Tehran Stock Exchange from 2006 to 2011 and the statistical sample was 151 companies which were selected from among them. The research results indicated that companies with higher ratio of market value to book value and larger size held less cash reserves. It seems that the mentioned specification played a role in determining cash holding policies of companies and potentially prevented from cash accumulation in them. Also, the companies which earned cash flow resulting from higher operations had higher cash balance and excess cash holding reduced stock return of the companies; as a result, investors show undesirable reaction to excess cash.