Cash Deficit Research Articles

Cash flow analysis: Red flag indicators of financial distress in Malaysian companies

The unprecedented coronavirus disease (COVID-19) pandemic devastated the world from early 2020 caused an economic decline impacting numerous companies worldwide, including Malaysia. Thus, companies should foresee financial distress to better prepare and establish mitigating measures for future challenges. One method to examine the financial situation of a company is by investigating the cash flow information. The study aims to investigate the relationship between cash flow patterns and financial distress. Data were gathered from 24 public listed companies in Bursa Malaysia from 2009 to 2019 and the study applied the binary logistic regression and chi-square analysis test for independence. The results indicated that companies with a negative cash flow from operating activities would more likely experience financial distress due to the inability to generate sufficient cash to cover operations, future investment, and long-term debt. Additionally, distressed companies tend to discard fixed assets/investments, or drawdown borrowings to relieve the cash deficit.

State-subsidised housing designed for income generation: the case of K206 housing in Johannesburg

State-subsidised housing in the Global South often receives criticism for ­failing to meet the economic needs of low-income citizens. The K206 housing project, situated in Alexandra, Johannesburg, stands out as a unique case by not only addressing housing requirements but also addressing the economic concerns of its low-income homeowners. This response included the incorporation of state initiated formal built-in rental rooms and provisions for incremental extensions to support income generation. This paper aims to explore both of these options that allowed residents to use housing as a means of income generation, and examines household strategies and the motivations behind using these options for extra income. Twenty-one resident interviews and spatial analyses provided insights on how the K206 housing facilitated income-­generating opportunities for its residents and analyses whether households capitalised on these opportunities and the factors influencing their decisions to do so. The findings were that state built-in backyard rooms did not generally work for income generation due to poor allocation strategies that caused conflict. Incremental extensions, even in unintended locations proved more effective for generating income. Incrementally added backyard rooms served multiple purposes and had the potential to generate income to address cash shortfalls, contribute to ­pension plans, and facilitate investments.

Analisis Penerapan ISAK No.35 Laporan Keuangan Entitas Non Laba Pada Masjid Agung Surakarta

The purpose of this study is to find out the form of financial statements and to find out the implementation of ISAK No.35 in the Financial Statements at the Great Mosque of Surakarta. The method used is descriptive qualitative data analysis. The data source uses primary and secondary data collected by researchers using interview, observation and documentation techniques. The researcher conducts data analysis by collecting data, reduce, presenting with the final stage of drawing conclusions. The results of the study show that the financial records of the Great Mosque of Surakarta are known to have a surplus and cash deficit every month. Analysis of the implementation of ISAK No.35 for the preparation of mosque financial statements was not found in the presentation standards carried out in 2023. At the end of the research to prepare the financial statements of the Great Mosque of Surakarta through the implementation of ISAK No.35, a more structured and detailed financial report was made for the entire mosque's finances, not only in terms of cash income and expenditure in the research.

Cash Flow Statement Analysis on PT Tanaka Citra Gemalang Tangerang Plant 2016-2020 Period

Based on PT Tanaka Citra Gemalang cash flow statement, it shows that their cash activities from 2016-2020 have an unstable condition, the difference is very significant, this can cause from Covid-19 pandemic that company has been facing. The purpose of this research is because writer want to know how is the cash flow activities condition and how company can develop their cash flow which in cash flow was included an operation activity, investment activity and funding activity. On this research, writer use cash flow pattern analysis and also horizontal finance analysis. The results from cash flow analysis shows that cash flow have a negative result. With this cash balance which always decreasing on the past three years and company was also having a cash deficit on the past two years, it means that the conclucion of this situation is PT Tanaka Citra Gemalang finance situation is not on well finance situation.

What can we learn from administrative benefits data?

We present the opportunities and limitations of administrative benefits data held by local authorities for data linkage projects. Whilst the richness of this data has been exploited by practitioners for administration, its potential remains little explored by researchers. We discuss data quality, sample selection and legal gateways for data sharing.
 Drawing on our experience working with over 40 local authorities, we present the structure of three datasets: the Council Tax Reduction Scheme, the Single Housing Benefits Extract and the Universal Credit Data Share. We show what variables are usually included, under which legal gateways this data can be shared and how the cohorts represented within the data compare with the low-income population. We discuss how these datasets can be linked at the household level with a number of other data held by local authorities such as social rent and Council Tax arrears, Housing Benefit overpayments and Discretionary Housing Payments (DHPs).
 Administrative benefits data provides a comprehensive snapshot of a household’s financial situation. Local authorities can proactively use and share this data with external data processors to fulfil their statutory duties if a legal gateway allows. By identifying households at risk of cash shortfalls before they reach a crisis point, councils can target support when administering local welfare schemes and preventing homelessness. By assessing eligibility for benefits, they can run data-driven uptake campaigns. This data captures a proportion of the population on national and local benefits within a local authority at several points in time. Attrition is of concern since households may leave datasets over time. Some will see their income rise and no longer qualify for benefits. Others will move out of the constituency.
 Local authorities routinely process longitudinal data on households receiving means-tested benefits by administering housing benefits, council tax support, and discretionary support funds. This data provides a unique real-time insight into the socioeconomic situation of low-income households. Yet, we show that its promising potential for policy research remains largely untapped.

Do tournament incentives affect corporate dividend policy?

This paper examines whether promotion-based tournament incentives affect corporate dividend payouts. Using the pay gap between the CEO and non-CEO executives as a proxy for tournament incentives, we find that tournament incentives are negatively related to corporate dividends. Further analyses show that the negative effect is stronger in firms that are financially constrained, have volatility in cash flows and earnings, and operate in less homogeneous industries. We also provide evidence that tournament incentives are positively related to payout flexibility. Our findings are consistent with the notion that firms reduce dividends to mitigate potential cash shortfalls associated with increased risk-taking induced by tournament incentives.

현금부족이 외부자본 조달 결정에 미치는 영향

Purpose - Based on the funding-horizon theory, this study aims to test the effects of cash needs and the persistence of external funding needs on firms' external financing.
 Design/methodology/approach - Financial data of Korean listed companies were collected from DataGuide. Immediate and near-term cash shortfalls are defined using the methodology of Haung and Ritter (2021). We estimate multinomial logit regressions for the financing choice.
 Findings - First, all three cash depletion variables used in our study increase the likelihood of external financing. Second, firms prefer to issue debt to meet immediate spending and equity to meet long-lived cash needs. Third, this effect is more pronounced for high R&D firms. Fourth, chaebol firms with internal capital markets defer raising external capital for immediate and near-term cash needs.
 Research implications or Originality - This paper provide empirical evidence that immediate and near-term cash needs induce external financing, and the persistence of cash needs affects the choice between debt and equity, the finding which is consistent with the funding-horizon theory of financing decisions. Being the first paper to test the funding-horizon theory using Korean data, this paper contributes to the literature on the capital structure of Korean firms.

Cash shortfalls in IPO firms

We find that most IPO firms will run out of cash soon if they did not receive proceeds from IPOs. The cash shortfalls are not caused by increases in capital expenditure, R&D, M&A, or debt repayment and persist during the 5 years after IPO. Negative net cash flows help explain the persistent cash shortfalls. These results are consistent with the funding horizon theory. IPO firms with more initial cash shortfalls also have lower cash flows in the next 5 years, suggesting that initial cash shortfalls can be used to predict the future operating performance of IPO firms.

Cash shortfall, SEO offer size, and SEO announcement returns

We examine the announcement returns of 3483 seasoned equity offerings (SEOs) during the 1996–2018 period. Although there is a significant decline in SEO announcement returns, we show that cash shortfall in the year before SEO has a positive impact on SEO announcement returns. By matching SEO offers sizes and cash shortfalls, we also find that negative announcement-period returns become positive when SEO offer size is determined in concert with cash shortfall. Patterns of long-run abnormal firm performance after SEO announcements are consistent with those we document for the announcement-period returns. Our results suggest that cash shortfall in the year before SEO as indication of funds needs mitigates agency spending of SEO proceeds, and thus, the market welcomes the SEO announcement with positive stock price reactions.

Cash holding and performance analysis of mutual funds: a case of an emerging financial market

PurposeThis study is about the determinants of cash holding and impact of cash holding on mutual funds’ performance. In addition, the study analyzes the impact of performance-related determinants of cash holding on funds' performance.Design/methodology/approachPanel data of ten years of 190 open-end mutual funds are analyzed through fixed effect regression technique. The risk-adjusted funds' performance of cash based portfolios is computed through capital asset pricing model (CAPM) (1964), Fama and French (1993) and Carhart (1997) models.FindingsThe results indicate that small size funds, high charging front-end load funds, high turnover ratio funds, high 12-month fund returns run up, high dividend paying funds and high redemption level funds hold more cash for precautionary purpose to avoid costs of cash short-falls. Further, monthly average raw returns and risk-adjusted performance of funds with the lowest raw and residual cash holding are found higher than the funds with the highest cash holding. An increase in cash is found to dilute performance.Originality/valueThis is a pioneer study in a corporate environment with shallow capital market, reliance of businesses on bank credit, firms exposed to agency issues, wealth expropriations and existence of business groups with political linkages but with opportunities of investments due to expected favorable geo-socio-political situation. The study generates outcomes relevant for other similar economies.

Use of Probabilistic Approaches to Predict Cash Deficits

This article deals with issues related to the use of mathematical methods of cash deficit probability predictions. A number of objective and subjective factors are described that prevent the wide integration of mathematical methods in the practical activities of economists. It is justified that, due to the large number of external and internal factors affecting the economic system state, the values of indicators of an economic system state are often random. The possibility of using probability theory methods to predict the occurrence of cash deficits is proved. Using empirical data including the results of thousands of observations, the possibility of using the normal distribution density function for the purpose of predicting insufficient funds for payment is illustrated. The essence of the proposed model is that it contains a prediction of a macrotrend—i.e., the risk of a cash gap—based on high-frequency microlevel data. At the same time, a prediction of the probability of a cash deficit, and not its estimation for a specific date, was made. This is the main difference between the described model and common scoring estimates. This article proposes an approach to estimate the probability of a cash deficit based on data from a specific business entity, rather than aggregated data from other organizations.

Heuristic Methods for Finance-Based and Resource-Constrained Project Scheduling Problem

AbstractContractors are often simultaneously subject to capital shortages and resource scarcities in construction projects, forcing them to rely on loans to offset cash deficits during project exec...

Global Corporate Stress Tests—Impact of the COVID-19 Pandemic and Policy Responses

Corporate sector vulnerabilities have been a central policy topic since the outset of the COVID-19 pandemic. In this paper, we analyze some 17,000 publicly listed firms in a sample of 24 countries, and assess their ability to withstand shocks induced by the pandemic to their liquidity, viability and solvency. For this purpose, we develop novel multi-factor sensitivity analysis and dynamic scenario-based stress test techniques to assess the impact of shocks on firm’s ability to service their debt, and on their liquidity and solvency positions. Applying the October 2020 WEO baseline and adverse scenarios, we find that a large share of publicly-listed firms become vulnerable as a result of the pandemic shock and additional borrowing needs to overcome cash shortfalls are large, while firm behavioral responses and policies substantially help overcome the impact of the shock in the near term. Looking forward, while interest coverage ratios tend to improve over time after the initial shock as earnings recover in line with projected macroeconomic conditions, liquidity needs remain substantial in many firms across countries and across industries, while insolvencies rise over time in specific industries. To inform policy debates, we offer an approach to a triage between viable and unviable firms, and find that the needs for liquidity support of viable firms remain important beyond 2020, and that medium-term debt restructuring needs and liquidations of firms may be substantial in the medium-term.

Do Financing Constraints Lead to Incremental Tax Planning? Evidence from the Pension Protection Act of 2006*

ABSTRACTOver the past three decades, academic research has sought to understand how cash shortfalls impact a firm's ability to take all available value‐increasing investment projects. We investigate whether firms facing greater financing constraints turn to tax strategies that generate lower cash effective tax rates (ETRs) to mitigate the adverse effect of these financing constraints. We use the Pension Protection Act of 2006 (PPA 2006) as an exogenous shock to financing constraints for pension firms, but not for other firms. Using a difference‐in‐differences research design, we predict and find that pension firms experience a decrease in their cash ETRs by 1.8%–2.4% after the PPA 2006, relative to other firms. These cash tax savings mitigate the investment shortfall brought about by financing constraints by 19%. We also predict and find that the decline in cash ETRs is greater among firms more adversely affected by the PPA 2006. Our paper sheds light on the direction, causality, and economic magnitude of the association between financing constraints and tax planning activities. We also provide insight into the role of tax planning activities within firms' broader corporate business strategies in responding to financing constraints.

Developing a Cash Budget for the Savannah Squares

Like many sport organizations, the Savannah Squares Minor League Baseball franchise is a seasonal business. The team earns most of its revenue during the playing season and must manage its cash effectively throughout the fiscal year. Fixed costs and other cash expenditures often fall into a pattern that differs from the cash receipts schedule. Poor cash management, inaccurate budgets, and improper execution of annual budgets lead to costly cash shortfalls. For the Savannah Squares, annual pro forma budgets have predicted tight but positive earnings for the past few years; however, monthly shortages have led to penalties and late fees that ate into profits and caused financial strain on the organization. Using historical trends and other available data, Juan Hernandez has decided to create a cash budget to identify months with cash surpluses and shortfalls so that he can implement better cash management strategies.

Firm-bank Linkages and Optimal Policies in a Lockdown

We develop a novel framework featuring loss amplification through firm-bank linkages. We use it to study optimal intervention in a lockdown situation that creates cash shortfalls for firms, which must resort to bank lending. Firms’ increased debt reduces their output due to moral hazard. Banks need safe collateral to raise funds. Without intervention, aggregate risk constrains bank lending, amplifying output losses. Optimal government support provides sufficient aggregate risk insurance, and is implemented through transfers to firms and fairly-priced guarantees on banks’ debt. When aggregate risk is not too large, such guarantees can be financed through a procyclical taxation of firms’ profits.

SYSTEMIC RISK: THE EFFECT OF MARKET CONFIDENCE

In a crisis, when faced with insolvency, banks can sell stock in a dilutive offering in the stock market and borrow money in order to raise funds. We propose a simple model to find the maximum amount of new funds the banks can raise in these ways. To do this, we incorporate market confidence of the bank together with market confidence of all the other banks in the system into the overnight borrowing rate. Additionally, for a given cash shortfall, we find the optimal mix of borrowing and stock selling strategy. We show the existence and uniqueness of Nash equilibrium point for all these problems. Finally, using this model we investigate if banks have become safer since the crisis. We calibrate this model with market data and conduct an empirical study to assess safety of the financial system before, during after the last financial crisis.

Cash is Queen: Female CEOs’ propensity to hoard cash

Recent research makes contradictory claims regarding why female CEOs eschew riskier policies. Benchmarking risk aversion by how much cash is accumulated and managed, we find strong evidence of greater female risk aversion above the glass ceiling. Using propensity-score matching and difference-in-differences around CEO transitions to account for possible endogeneity, we find that female CEOs hold more cash, reverse cash deficits faster, and are more likely to use excess cash to increase dividends, but not investment. We also find that, in the presence of high cash holdings, female CEOs are able to generate significantly higher Return on Assets (ROA) suggesting that risk aversion on the part of female CEOs does not hurt financial performance but rather enhances it.

Systemic Risk: the Effect of Market Confidence

In a crisis, when faced with insolvency, banks can sell stock in a dilutive offering in the stock market and borrow money in order to raise funds. We propose a simple model to find the maximum amount of new funds the banks can raise in these ways. To do this, we incorporate market confidence of the bank together with market confidence of all the other banks in the system into the overnight borrowing rate. Additionally, for a given cash shortfall, we find the optimal mix of borrowing and stock selling strategy. We show the existence and uniqueness of Nash equilibrium point for all these problems. Finally, using this model we investigate if banks have become safer since the crisis. We calibrate this model with market data and conduct an empirical study to assess safety of the financial system before, during after the last financial crisis.

Corporate Cash Shortfalls and Financing Decisions

Abstract Given their actual revenue and spending, most net equity issuers and an overwhelming majority of net debt issuers would face immediate cash depletion without external financing. Debt issuers tend to have short-lived cash needs, while equity issuers often have persistent cash needs. On average, debt issuers immediately spend almost all of the proceeds, while equity issuers retain much of the proceeds in cash. Anticipated near-future cash needs and fixed costs of financing help explain the fraction of the proceeds being retained. Our findings support a funding-horizon theory in which cash needs and the nature of cash needs motivate financing decisions.