Cash Reserves Research Articles

The Impact of Geopolitical Risk, State Ownership, and Group Affiliations on Indonesian Firms' Cash Reserves

The purpose of this study is to examine whether geopolitical risks affect firms' cash reserves in Indonesia. Using a panel data analysis, we analyze the role of GPR (short for geopolitical risk) on firms' cash reserves from 2010 to 2020. The results reveal that firms spend their cash reserves when encountering geopolitical risk, specifically financially constrained firms. We extend our study by investigating the effects of state ownership and group affiliations on firms' attitudes towards GPR. State ownership positively affects the relation of GPR and firms' cash reserves, while group affiliation doesn't show a notable impact. The result was robust to endogeneity issues. However, further studies are still needed to determine the extent of geopolitical risk impacts firms' performances. This research is hoped to be useful for policy-makers to anticipate appropriate future regulations in order to help entrepreneurs and the country's economic growth. As for the practitioner itself, i.e., firms, business owners, and entrepreneurs, this research is expected to provide notable information about the impact of risk on firms in Indonesia. Since the economy is shifting to a borderless economy, it can be one of the considerations in making business or economic decisions when firms are faced with geopolitical uncertainty.

Cash Reserve Ratio and Credit to Micro-, Small and Medium-Sized Enterprises in Developing Economies. Analysis of Transmission Channels Using Nigerian Data

This study examines the channels of transmission through which cash reserve ratio impacts on credit to micro-, small and medium-sized enterprises (MSMEs). A vector error correction model was used to capture the objective. Quarterly data ranging from 2001 to 2017 were also utilized in the analysis. The study found that cash reserve ratio indirectly impacts credit to MSMEs through liquidity ratio and lending interest rate as its channels of transmission. It is worthy to note that, as liquidity ratio has a positive significant impact on credit to MSMEs, lending interest rate has a negative but significant impact on credit to MSMEs. To boost economic productivity in developing economies, the study therefore recommends that the monetary authorities reduce the cash reserve ratio in order to increase commercial banks’ liquidity. As the commercial banks’ liquidity rises, they should also reduce their lending interest rate to increase access to credit by MSMEs. Again, the government should appropriate and monitor the judicious disbursement of interest-free loans/credit to MSMEs through banks, especially development banks.

Central Bank Digital Currency, Credit Supply, and Financial Stability

AbstractWe examine the implications of central bank digital currency (CBDC) for credit supply and financial stability using a monetary general equilibrium model. The introduction of deposits in CBDC account decreases credit supply by banks, raising the nominal interest rate and lowering a bank's reserve‐deposit ratio. This increases the likelihood of bank panic in which banks exhaust cash reserves. However, once the central bank can lend all the deposits in CBDC account to banks, an increase in the quantity of CBDC which does not require reserve holdings can enhance financial stability by increasing credit supply and lowering nominal interest rate.

Leadership challenges for Indian hospitality industry during COVID-19 pandemic

PurposeThe COVID-19 crisis has affected almost all the global sectors. The hotel industry, however, was hit hardest challenging the leadership. This study, therefore, attempts to explore the challenges hospitality leadership in India face to navigate the crisis. The study additionally addresses how leaders manage the expectations of key stakeholders; communicate hard decisions with employees, pursue strategies for revival and explores the role of technology to survive the crisis.Design/methodology/approachThe study adopts a qualitative approach involving structured interviews with 16 senior hospitality leaders consisting of CEO, vice president, general managers, directors, entrepreneur and general managers from various organisations like hotels, restaurant chains, food services and facilities management services. Data were content analysed involving coding techniques.FindingsThe leadership challenges included making customers and employees feel safe, optimising operations, agility and resilience of leaders, maintaining a balance between stakeholders, managing employee stress and ensuring cash reserves. The study found that leaders manage the expectation of various stakeholders by maintaining balance, demonstrating empathy and agility. The hard decisions are communicated with the employees through involvement, empathy and alleviating stress.Research limitations/implicationsThe study contributes by identifying twelve themes from the participants' responses under five major themes-labelled as leadership challenges, managing stakeholders, communicating with the employees, the role of technology and best practices of surviving the crisis. Future research can be conducted on such sub-themes in different countries.Practical implicationsAs the tourism industry in India is recovering after the second wave, the governments along with all stakeholders, must launch special events for promoting the tourism sector. Safety measures like making vaccination certificates for all tourists and employees of the tourism sector should be made mandatory. Further, special certification following the COVID-19 protocol needs to be introduced for hotels and catering establishments. A fund generated from the sector's direct tax contribution needs to be established to support the employees.Social implicationsThe study has several social implications. The study results can unite all industry stakeholders to shape the post-pandemic era through collaboration. Empathetic leadership can take the industry out of chaos by balancing the interests of the various stakeholders of society. The pandemic has proven that we all are vulnerable to risks and challenges; leaders have a vital role in taking proactive steps to ensure that such uncertainties do not cause unprecedented damage.Originality/valueThis study expanded the research on the hospitality leadership challenges in managing crises in the backdrop of the crisis caused by COVID-19 pandemic. The conceptual model, variables, themes and sub-themes utilised are original contributions to the hospitality literature.

From Stream Flows to Cash Flows: Leveraging Evolutionary Multi‐Objective Direct Policy Search to Manage Hydrologic Financial Risks

AbstractHydrologic variability can present severe financial challenges for organizations that rely on water for the provision of services, such as water utilities and hydropower producers. While recent decades have seen rapid growth in decision‐support innovations aimed at helping utilities manage hydrologic uncertainty for multiple objectives, support for managing the related financial risks remains limited. However, the mathematical similarities between multi‐objective reservoir control and financial risk management suggest that the two problems can be approached in a similar manner. This paper demonstrates the utility of Evolutionary Multi‐Objective Direct Policy Search for developing adaptive policies for managing the drought‐related financial risk faced by a hydropower producer. These policies dynamically balance a portfolio, consisting of snowpack‐based financial hedging contracts, cash reserves, and debt, based on evolving system conditions. Performance is quantified based on four conflicting objectives, representing the classic tradeoff between “risk” and “return” in addition to decision‐makers’ unique preferences toward different risk management instruments. The dynamic policies identified here significantly outperform static management formulations that are more typically employed for financial risk applications in the water resources literature. Additionally, this paper combines visual analytics and information theoretic sensitivity analysis to improve understanding about how different candidate policies achieve their comparative advantages through differences in how they adapt to real‐time information. The methodology presented in this paper should be applicable to any organization subject to financial risk stemming from hydrology or other environmental variables (e.g., wind speed, insolation), including electric utilities, water utilities, agricultural producers, and renewable energy developers.

Assessment of the feasibility of establishing financial slack in a company: The model and its empirical verification

Financial slack refers to excessive financial resources of a company that exist in addition to those that are necessary for operating activities. Is it feasible for a company to create financial slack? The answer to this question is ambiguous. On the one hand, the existence of slack provides a company with resources that can be used, for example, in case of financial constraints or for investing. On the other hand, the creation of financial slack means that the underlying cash reserves cannot be used for other purposes, for example, for distribution to stockholders. The paper presents the model for valuing a company’s financial slack that builds on the investment motive for forming the slack. The slack itself is considered to be a real option. The proposed model stipulates the conditions under which the creation and storage of financial slack is expedient. Those conditions are determined by the current value of business as well as by its riskiness. The empirical verification of the model was conducted by using the sample of 180 Russian public companies, the shares of which were traded in 2012–2019. The study confirmed that the return on financial slack in the current period will be higher specifically for those companies which were recommended to form financial slack in the prior period according to the proposed theoretical model.

INTERNET BANKING AND FINANCIAL INTERMEDIATION IN THE NIGERIAN BANKING INDUSTRY

The acceptance and deployment of internet banking service is expected to improve financial intermediation banking system by reducing cost of transactions, enhancing liquidity and increased financial intermediation. However, this is a far cry to what is being experienced in the Nigerian banking industry, as credit flow from banks have been on the decline. It has been revealed that the total credit from banks to the economy recorded a decline of #135.8bn from #15.74tn at the end of the fourth quarter of last year to #15.6tn in the first three months of 2020. These revelations suggest that Nigeria’s economic growth trajectory has been diminutive, as individuals have found it difficult to have access for either start-up or expansion of their businesses from banks. On this premise, this study was carried out to investigate the effect of internet banking on financial intermediation. In a clear departure from existing literature, the study factored in the moderating effects of interest rate and cash reserve ratio, which hitherto has been identified as key impediments to bank intermediation. Data was collected from 2009 to 2020 on monthly bases from the Central Bank of Nigeria (CBN) for the variables; financial intermediation (measured as ratio of currency outside banks to broad money supply), interest rate, cash reserve ratio and internet banking service for all commercial banks in Nigeria. Linear Regression models were formulated to achieve the stated objectives. Findings revealed that internet banking service has a negative insignificant effect on financial intermediation, the interaction between internet banking and interest rate has a positive insignificant effect on financial intermediation while the interaction between internet banking and cash reserve ratio has a negative insignificant effect on financial intermediation. It was recommended among others that the Central bank of Nigeria should make efforts to alleviate the cost of internet banking borne by banks. This will certainly reduce the burden on banks and make more money available for intermediation.

The Relationship Between Liquidity Risk and Profitability in the Commercial Banks Listed in Amman Stock Exchange

This study aimed to evolve the relationship between liquidity risk and the profitability among commercial banks (n=16) listed on the Amman Stock Exchange. The evolution was based on the annual reports from 2010 to 2019. A suitable multiple regression model was used to achieve this goal, which indicated no statistically significant relationship between the liquidity risk indicators and the majority of profitability indicators. However, the Cash Reserve Ratio (CRR) index was statistically significant with the Utilization Ratio (UR). Additionally, there was a statistically significant relationship between the return on equity and the legal reserve ratios and the funds’ investment. This study recommends raising the awareness of the relationship between the indicators of liquidity risk and profitability among the financial policy planer in Jordanian commercial banks because the maintained level of liquidity will undoubtedly affect the volume of investments in banks. Thus, influencing the bank market value by increasing the share on the stock exchange.

External Economic Shocks and Monetary Policy Tools in Nigeria

The study investigated the effect of external economic shocks on monetary policy tools in Nigeria for a period of 1990 to 2020. External economic shocks were measured though their passthrough variables of exchange rate (EXR), foreign direct investment (FDI), external debt (ED), and trade openness (TO); while monetary policy tools were considered in terms of broad money supply (M2), monetary policy rate (MPR) and cash reserve ratio (CRR). The Zivot and Andrews test and the Bayer and Hanck combined cointegration tests were employed to to check for stationarity (with structural breaks) and cointegration among the variables. We then applied the autoregressive distributed lag (ARDL) test to determine the effect of the relationship between the independent variables and the dependent variable. The results of the structural indicated that there are structural breaks accounting for the existence of shocks, while the cointegration test showed that the variables are cointegrated. The ARDL test disclosed that external economic shocks (through EXR, FDI, ED, and TO) have significant effect on monetary policy variables. This study therefore recommends that the monetary authorities should safeguard the monetary operations in Nigeria from external economic mishaps that have spillover to the country by making allowance for the external economic shocks in setting these tools and putting in place mechanisms that can make these tools resilient and resistant to the shocks

Financial Sector Liberalisation and Capital Market Growth in Nigeria

The study examined financial sector liberalisation and capital market growth in Nigeria from 1985 to 2021 with secondary data sourced from the Central Bank of Nigeria Statistical Bulletin. The two formulated hypotheses were tested with the Augmented Dickey-Fuller (ADF) and error correction mechanism. Findings from the study revealed that broad money supply and credit to private sector have a positive and significant effect on both market capitalisation and volume of transactions. Also, cash reserve requirements and exchange rate have negative and significant effects on both market capitalisation and volume of transactions. Interest rates have significant and positive effects on market capitalisation and significant negative effects on volume of stock transactions. Foreign direct investment has a positive and insignificant effect on market capitalisation and volume of transactions. The study recommended that the monetary authority in Nigeria must continually improve the monetary policy to control the money supply in the economy and reduce the interest rate to enhance capital market expansion. Also, the Nigerian government should encourage more exports to create a positive relationship between exchange rate and stock prices. This will make local currency depreciate and local firms will become more competitive, leading to an increase in stock prices.

BUSINESS RISK IN TIMES OF ECONOMIC RECESSION AND ECONOMIC GROWTH

The issue of business risk in times of recession or growth is very topical in these times. The Czech Republic and its neighboring countries are currently struggling with the economic problems caused by the Covid-19 pandemic. The aim of the paper is to analyze the number of insolvency petitions in the Czech Republic from the years 2010–2020 and to compare them with each other. The data source are data from publicly available resources from the Creditreform group and also from the CRIF database of the Cribis platform. First were created tables for the Agriculture and Forestry, Manufacturing, Construction and Transport sectors. Data for the relevant years were added to them from the aforementioned resources. Then was created a line chart for each industry. Using time series analysis and comparison, we analyze and compare the development of insolvencies. At the same time, we use causal analysis to find out why there were high numbers of insolvencies in the given years. We are also looking at which sectors were hit hardest during the insolvency crisis, when they were hit hardest, how they did in times of economic growth and how they should adapt to the next possible crisis. During the Great Recession, the construction sector was hit the hardest, and then the transport sector also suffered greatly. The largest numbers of insolvencies can be observed in 2012. At a time of economic growth, which began in 2014, the numbers of insolvencies fell in all sectors analyzed, but mostly in agriculture and forestry and transport. Businesses in the sectors analyzed can adapt to the next crisis by creating larger cash reserves or changing, for example, crop production or transport by temporarily reducing fares to attract new customers. We see the benefit of this work in the analysis of the number of insolvencies in the given sectors, which has not been recorded in almost any academic papers. We also see a benefit in determining the conditions for how companies can prevent another crisis.

Determinants of Commercial Banks' Lending Behavior: Evidence from Vietnam

The paper examines the factors affecting the lending behavior of commercial banks by using panel data of Vietnam's listed commercial banks on two stock exchanges, namely the Ho Chi Minh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) from 2009 to 2018. According to the results of the regression analysis, the GDP has a positive and significant influence on bank lending, whereas the liquidity ratio (LIR), management quality (MQR), and cash reserve ratio (RRR) all have a negative influence on bank loans (LOA). Moreover, operating expenses (OEA) and lending rates (LDR) do not appear to influence bank lending behavior. To prevent the occurrence of bad debt, the results recommend that banks work harder to increase deposits and exercise caution when making lending decisions.

COVID-19 Lockdown Restrictions and Small Business Survival Strategy: Government Supporting Schemes

From antiquity to the present day, the contribution of small businesses to the economic development of a country is overwhelming. Nowadays, COVID-19 lockdown restrictions have exerted an outrageous impact on small businesses survival. In developing countries where government-supporting capacity is low, the severity is substantial. The present study predicts the impact of COVID-19 lockdown restriction and government supporting schemes on small business survival. To meet this purpose, the study primarily used PLS-SEM and binary logit models. The results confirmed that over 44% of small businesses would fail in the first month of lockdown restriction. Moreover, only 6% have cash reserve to survive twelve months. In this regard, the present study suggested that the government should have to abstain from total lockdown measures, without government-supporting schemes. As such, the study has examined the relative importance of COVID-19 based special loan, suspension of payments, withdrawal of restricted funds, and exemption of tax and penalty payments. Among these supporting schemes, COVID-19 based special loan is the most important government-supporting scheme followed by the suspension of interest and principal payments. However, the exemption of tax payments and withdrawal of restricted funds were not significant.

Firm Characteristics and Operational Efficiency of Agricultural Firms Listed at Nairobi Securities Exchange in Kenya

Operational efficiency has attracted much interest in corporate finance literature over several decades. However, in the context of the agricultural sector, it has received little attention in developing economies such as Kenya. Operational efficiency and performance of Agricultural firms listed at the Nairobi securities Exchange have been fluctuating over the years. This is partly attributed to specific firm characteristics. The objective of this study was to determine the relationship between firm characteristics and operational efficiency of agricultural firms listed at Nairobi securities Exchange. The study was anchored on trade off theory, liquidity preference theory, agency theory, miller and Orr’s cash management model. The target population was 7 agricultural companies listed at Nairobi securities exchange. The study used audited financial statements’ secondary data collected from 2011 to 2020. Data was analysed using descriptive statistics, correlation analysis and panel data regression analysis with the help of STATA version 13. The study found out that there was a significant negative relationship between asset tangibility, firm size and operational efficiency of agricultural companies listed at Nairobi securities exchange. Further, there is a significant positive relationship between cash reserves and operational efficiency of agricultural firms listed at Nairobi securities exchange. This study recommends that management of agricultural companies listed at Nairobi securities exchange should pay attention on asset tangibility, firm size and cash reserves because they have a significant relationship with operational efficiency. Firms can utilize productive assets as collateral for debt without incurring high borrowing costs. The firm size should be optimal because very large firms are characterised by inefficiencies due to control weaknesses. Policy makers should incorporate factors such as asset tangibility, firm size and cash reserves in their strategic plans. Keywords : Operational efficiency, firm characteristics, firm size, liquidity, asset tangibility and cash reserves. DOI: 10.7176/RJFA/12-24-01 Publication date: December 31 st 2021

Attention to dividends, inattention to earnings?

We examine whether dividends serve as substitutes or complements to accounting information in firm valuation. Consistent with dividends substituting for earnings information, we find that dividend paying firms have 11%–15% lower earnings response coefficients (ERCs) than non-payers. We find more substitution when the dividend provides a stronger signal of permanent earnings: when the firm is less likely to cut the dividend, when the firm is likely to fund the dividend out of earnings rather than cash reserves, or when the dividend is larger. We then show that dividend payers have lower absolute returns, less trading volume, and fewer analyst forecasts at the earnings announcement (EA), suggesting that dividend payers attract less attention to their less informative EAs. Finally, we show that the lower EA attention translates into less earnings management and fewer earnings-related disclosures for dividend payers relative to non-payers. Collectively, this evidence suggests that dividends supply information about permanent earnings and, although costly, could be an efficient way for some firms to satisfy investors’ demand for earnings information.

Determinants of financial distress in the European air transport industry: The moderating effect of being a flag-carrier.

Due to the COVID-induced global collapse in demand for air travel, the year 2020 was a catastrophic one for the aviation industry. A dramatic drop in operating revenues along with continuing fixed expenses drained the cash reserves of airlines, with consequent risks of financial distress and, potentially, even of bankruptcy. Flag-carriers are a special group in the airline business—they are considered to have privileges in terms of the support given by governments while, on the other hand, are often viewed as having low efficiency and performance. This study aims to estimate for European airlines the interaction effect of being a flag-carrier (flagship) with the relationship between leverage, liquidity, profitability, and the degree of financial distress. Findings obtained from analysing 99 European airlines over a period of ten years, indicate that the negative influence of leverage on financial stability is higher in the case of flag carriers (flagship). The impact of liquidity and profitability on financial health is more positive for flagship than for non-flagship carriers. These findings are not limited to contributing to the existing literature, but also have significant practical implications for executives, managers, and policy makers in the European air transport sector.

State‐ownership and corporate cash holding: Evidence from China

AbstractWith a background of the recent reform of Chinese state‐owned enterprises (SOEs), how the state ownership affects the behaviour of corporations is an important research topic. Using a dataset of 2,908 listed nonfinancial firms in China from 2007 to 2017, we innovatively employ the Blinder–Oaxaca decomposition method to investigate the endowment and state‐ownership effects on corporate cash holdings. We find that the cash reserve level in SOEs is statistically significantly lower than that in non‐SOEs, whereas 78.98% of the difference can be explained by endowment differences, and only the remaining 21.02% is a distortion of state ownership. Moreover, the dynamic decomposition shows the state‐ownership effect on SOEs' cash holdings changes from positive to negative, meaning that credit discrimination has become more serious than soft budget constraints in recent years.

Risk Management and Performance of Conventional Banks in Pakistan

The study examines the relationship between risk management and performance of conventional banks in Pakistan. The study has been conducted using Capital adequacy ratio, non-performing loan ratio, Cost per loan ratio, Cash reserve ratio and Z-scoring ratio as the proxies of risk management and Return on asset has been used as the proxy of the bank financial performance. The study has used random sampling technique for the 20 conventional banks for the period 2010 to 2016. The study uses correlation and simple OLS to test the hypothesis. The results reveal that capital adequacy ratio and Z-scoring have positive significant impact on the conventional banks, financial performance, where as Non-performing ratio, cost per loan ratio and cash reserve ratio predicting negative affect on the financial performance of the conventional banks in Pakistan. The study has practical as well as theoretical implications. The results are expected to help policy makers to rehash their policies by encompassing the approaches that facilitate the risk management of banks in Pakistan. The study will also help researchers in strengthening their level of understanding of these relationships. Replication of the study may help to validate the hypothesized model and their consequent application in the organizations that share somewhat similar organizational structures.

Performance Modeling and Simulation for Water Distribution Networks

This study develops an implementation framework for asset management strategic planning of water distribution networks to meet sustainable infrastructure, socio-political, and financial targets over the life cycle of the infrastructure. The proposed framework is comprised of three decision-making layers: (1) Visions and Values, (2) Function, and (3) Performance. The asset management strategy framework is implemented and validated by demonstrating functionality and value by using data from three water utilities in Canada. The Visions and Values layer is set to meet the needs of the water utilities' stakeholders. The Function layer uses an advanced system dynamics model to simulate and forecast the system's future behavior. The Performance layer benchmarks, compares, and graphically illustrates the situation and performance of water utilities against each other regardless of their size. Benchmarking results indicate that all three water utilities can sustainably meet the strategic targets established in the Visions and Values layer of the asset management strategy over the benchmarking period. The impact of the desired cash reserve on infrastructure and financial benchmarking performance indicators is also investigated to explore the “optimal” combination of allowable fee-hike and rehabilitation rates using the contour plots developed over the benchmarking period. The results indicate that the optimal combinations of allowable fee-hike of ~8% per year and rehabilitation rate of 1.3% per year along with a 1–4% cash reserve, depends on the network condition, will allow water utilities to have sufficient funds to meet their strategic targets. The performance modeling and simulation approach presented in this study represents a powerful tool for other utilities to develop optimal strategic and operational plans for their networks and thus better service to their stakeholders.

When CEOs adapt: An investigation of manager experience, policy and performance following recessions

We examine changes in corporate policies following recessions during CEO tenures to evaluate the value of learning. CEOs with recession experience demonstrate expertise in risk-shifting strategies that can contribute to higher firm value and performance during subsequent recessions. Specifically, Recession CEOs use conservative capital structure and allocation during expansions, providing excess capacity and financial slack to accumulate additional cash reserves during economic contractions, resulting in lower bankruptcy risk. As a result, Recession CEOs are equipped to raise more capital in recessions, which results in higher asset growth fueled by investments in acquisitions and capital expenditures. We also examine prior recessions and find poor performers learn to invest more and perform better in subsequent contractions. Our results are strengthened through cumulative recession experiences, when downturns are deeper, and at cyclical firms, where economic cycles are most impactful and Recession CEOs are more relevant. Finally, we use time-varying industry downturns, matching, and CEO turnovers for inference. Overall, we offer novel evidence of valuable CEO learning around risk-taking following direct managerial experience as a firm policy determinant across economic conditions.