Cash Flow Hypothesis Research Articles

War! Good news for defense firms? Analysis of the impact of Russia–Ukraine conflict

PurposeThis paper examines the short-term market impact of the beginning of the military conflict between Russia and Ukraine (February 24, 2022) on the world’s largest defense firms.Design/methodology/approachThe authors examine the world’s 100 largest listed defense firms at and around the beginning of the military conflict between Russia and Ukraine using an event-study methodology.FindingsWe observe a positive and statistically significant stock price reaction at and around the beginning of the military conflict. These results are consistent with the asset-pricing perspective/expected cash flow hypothesis. Consistent with the captured regulator theory, we find superior market returns for the two portfolios with a greater weight of defense sales. Superior market returns are also found for defense firms with higher R&D and capital expenditure intensity. Finally, these reactions are reinforced or mitigated by other firm-specific characteristics such as size, profitability and institutional ownership.Originality/valueThe effect of the war on stock markets has been relatively little examined in the financial theory. This study intends to fill this gap in the literature.

An unreliable canary: Insider trading, the cash flow hypothesis and the financial crisis

This paper investigates whether measures of aggregated insider trading could have predicted the wider economic change that occurred in the UK around the time of the financial crisis. Seyhun's (1988, 1992) cash flow hypothesis is the underpinning rationale driving the investigation. Within a vector auto-regressive framework, this study disentangles the relationship between returns and the activities of insiders in UK listed firms in order to validate Seyhun's assertions in this context. Findings suggest that, unlike the US, the relationship is not present. Instead, aggregate measures of trading decisions show that insiders are more likely driven by public perception than by private information.

Capital Structure and Sensitivity in SME Definition: A Panel Data Investigation

We provide an empirical examination of the pecking order theory on capital structure in the field of Small and Medium Enterprises (SMEs). We mainly investigate if the results are sensitive to different definitions commonly used for these types of companies. Our evidence offers strong support for the growth opportunities and cash flow hypotheses. Firms that have many growth opportunities and small cash flows clearly show more debt in their capital structure. Moreover, results do not change when different SME definitions or sample sizes are used.

Advertising Rivalry in the U. S. Automobile Industry: A Test of Bain's Hypothesis

This paper examines Bain's Hypothesis that firms in the automobile industry engage in advertising competition and price collusion. It develops a game theoretic model, basing price on product characteristic and advertising on pure and mixed strategies. Solution concepts such as Cournot, Nash and Prisoner's dilemma are possible. The paper then moves into regression results of advertising outlays in newspaper, general magazines, spot television, and network television, given the firm's cashflow, OPEC influence, and Leader-follower hypotheses. When multicolinearity and serial correlation are adjusted for, the results corroborate Bain's advertising hypothesis with price collusion.