Cash Value Research Articles

Corporate cash savings and discretionary accruals

PurposeThis paper assesses how discretionary accruals (DAs) affect corporate cash savings policies and the motivation behind this cash saving behavior and, also whether the linkage between DAs and cash saving affect the market-perceived cash value.Design/methodology/approachWe construct the measure of DAs using the previous five-year average information to investigate the association of DAs with the change in cash. Moreover, the Faulkender and Wang (2006) methodology is utilized to examine the market-perceived cash value in DAs.FindingsThe key finding is that firms with high DAs save significantly more cash. A one standard deviation increase in DAs saves cash by 12.59%. Furthermore, the value of cash is low for these firms. The effect is stronger in firms with poor governance but not present in financially constrained firms.Research limitations/implicationsThe empirical evidence highlights DAs have negative effect on market-perceived cash value, which underscores the insight that managers manage earnings opportunistically using DAs.Originality/valueTaken together, we provide more evidence on the literature of accruals in earnings manipulation.

Geographical proximity and value of corporate cash holdings

PurposeIn this paper, the authors examine the association between a firm's geographical location and the value of its cash holdings.Design/methodology/approachFollowing Loughran and Schultz (2005) and Nielsson and Wójcik (2016), the authors define firms as either geographically remote or geographically proximate based on their distance to areas that are either largely populated or concentrated in financial expertise. We also estimate the marginal value of cash using the model developed by Faulkender and Wang (2006).FindingsThe authors find that the marginal value of cash is $0.10–$0.16 lower in remotely located firms than in geographically proximate firms. The lower marginal value of cash is prominent among remotely located firms with greater severity of information asymmetry. Our findings support the view that the inability of shareholders to closely monitor how managers use of firm cash may increase the perceived conflicts of interest associated with managers' cash spending and decrease the value of cash.Originality/valuePrevious studies try to explain the cash holdings puzzle by attributing it to CEO overconfidence, external funding constraints, poor corporate governance, difference in corporate financial policy, poor investor protection, lack of firm diversification and large operating losses. This study contributes to the extant literature by offering new evidence of the role of geographic location on the value of cash holdings.

МЕТОДОЛОГІЯ ОЦІНЮВАННЯ РІВНЯ ЕКОНОМІЧНОЇ БЕЗПЕКИ ПІДПРИЄМСТВА БЕЗ УРАХУВАННЯ БЕЗПЕКИ ЙОГО СТЕЙКХОЛДЕРІВ

The modern literature review has identified a certain research gap in developing an approach to assess the level of enterprise economic security that would not take into account the impact of its stakeholders security, on the one hand, but would provide it, if necessary, on the other – to combine both assessment methods. The purpose of this study is to improve the methodology for assessing the level of enterprise economic security beyond the context of considering its stakeholders security perspective. To attain the objectives set in the study, the following research methods have been employed: generalization – to explore different economic concepts and approaches to view the object of study and develop conclusions behind the content analysis of primary sources; analysis and synthesis – to interpret the key research categories and specify the economic security indicators. It argued that for assessing the level of economic security, from analytical perspective, the EBT deficit indicator (earnings before tax) seems more appropriate, since it offers all the advantages of net profit, but at the same time is characterized by the benefit of its comparability. It is suggested to calculate the EBT value deficiency as the amount of lost profit before tax, which is insufficient to ensure that the indicators of each component of the enterprise economic security are equal to their reference or established values. The study also specifies the economic security indicators subject to its decomposition, which is considered in terms of company current economic interests security and is presented by a hierarchical structure, as well as the overall enterprise security in the strategic period. Moreover, a special focus is placed that any stakeholders group has to be excluded from the above security hierarchy. The study offers an indicator to assess the level of enterprise economic security and an appropriate scale for transforming the obtained values into linguistic terms. To evaluate economic security in the strategic period, the use of the company cash value added indicator is suggested. The developed approach does not assume cost assessment needed to ensure stakeholders security which allows measuring the so called net economic security. The application of this approach in business practices of company structural units (including economic security services) will contribute to enhancing management decisions effectiveness, since the information available through the use of the proposed approach will provide an objective background to evaluate the effects from a number of activities against violation of the enterprise economic interests without taking into account the costs for ensuring the stakeholders security.

A Review of the Impact of Green Building Certification on the Cash Flows and Values of Commercial Properties

This study aims to review empirical research concerning the impact of green certificates on property cash flows and values, particularly from professional property investors’ perspective. The study uses discounted cash flows (DCF), a widely used property valuation method in income-generating properties, as a methodological framework. In this study, over 70 peer-reviewed studies were identified, categorized, and analyzed in the DCF framework. The reviewed studies indicated that certificates might increase the rental income and decrease the operating expenses, vacancy, and risks of a property. Together with the brand value of certificates, these enhancements should lead to an increase in property value. The number of studies has grown rapidly during the 2010s. Lately, studies have developed from asset-level to portfolio-level examinations. Although the reviewed studies found certification to be beneficial, the range of reported benefits was wide, and over half of the studies concentrated on U.S. commercial real estate markets, with a strong focus on LEED and ENERGY STAR certificates. From a property valuation perspective, applying these results to other markets and certificates might be challenging. Property values that fully reflect the environmental performance of properties would be a key to motivate mainstream investors to adopt sustainable property features.

Abnormal Returns, Corporate Financial Policies and the Dynamics of Leverage: Empirical Evidence from Non-Financial Sector of Pakistan

The aim of this study is to evaluate impact of corporate financial policies and the dynamics of leverage on financial performance of non-financial sector in Pakistan. In this study we used the data from Fertilizer, Chemical and Cement sector for the period 2008-2017. Abnormal return has been taken as dependent variable and Change in cash to lagged market values, Change in EBIT to lagged market values, Change in dividend to lagged market value, Net Financing to lagged market value, Lagged cash values to lagged market values, Lagged cash values to lagged market values crossed by change in cash to lagged market value, Change in total assets net of cash to lagged market values, Change in interest to lagged market values, Operating leverage, Financial leverage, Total leverage, Leverage ratio, Leverage ratio to change in cash crossed by lagged market values and WACC are taken as explanatory variables. OLS, Fixed effect and Random effect models has been used to express the impact of these variables on return. Hence it is concluded that leverage dynamics are significant contributors in designing the corporate financial policies. Corporate financial policies have significant impact on the financial performance of the non-financial sector of Pakistan.

Government control and the value of cash: evidence from listed firms in China

In this paper, we investigate the impact of government control on investors’ valuation of cash held by listed firms in China. We find strong and robust evidence that government control leads to a lower value of cash. Further evidence suggests that this negative impact is associated with significant agency costs of political expropriation rather than low financial constraints of the soft-budget effect. Moreover, our extended analyses reveal that the negative impact of government control on the value of cash depends on regional institutional development. In particular, in regions with high institutional development, government control reduces the value of cash, while in areas that are less developed, this negative impact is attenuated to some extent. Overall, our findings shed new light and add a further dimension to the literature, broadening our understanding of the impact of government intervention on the listed firms under its control.

The decrease in life insurance ownership

Based on our analyses of Survey of Consumer Finances datasets, the proportion of households owning a life insurance policy decreased from 72% in 1992 to 60% in 2016. We estimated logistic regressions on the likelihood of ownership of any, term, and cash value life insurance. We conclude that changes in household characteristics accounted for the decrease in term life insurance ownership, but not for the decreases in any and in cash value life insurance ownership. We also found a positive association between use of a financial planner and life insurance ownership. We discuss implications for financial planning.

Теория стоимостного подхода к управлению промышленными предприятиями

The article discusses the theoretical aspects of managing the value of industrial enterprises based on models that have become as wide-spread as possible, such as economic value added — EVA (Economic Value Added), MVA (Market Value Added), Equity value added — SVA (Shareholder Value Added), monetary value added — CVA (Cash Value Added), RCF (Resident Cash Flow) and Balanced Scorecard (BSC). The given models were chosen from a large number of proposed instruments in the works of domestic and foreign scientists, as the later concepts only developed the theory of their application. The purpose of the article was to share the determinants of the increase in the cost of industrial enterprises. The study is based on the theory of VBM (Value-Based Management) — valuebased management. The formation of this theory and the above-mentioned models in the historical aspect taking into account the factors of their occurrence are considered. The characteristic features of each model in terms of their application to cost management of modern domestic industrial enterprises were assessed. On the basis of the conducted study, the determinants of the increase in the cost of industrial enterprises and the methodology of their management have been determined.

Corporate brand value and cash holdings

This research devotes theoretical and empirical attention to the understudied relationship between corporate brand value and cash holdings. We draw on existing firm valuation theorizing at the marketing–finance interface to propose that branding can alter the probability distribution of the firm’s revenues, lower potential operating shortfalls (negative operating earnings), and thereby reduce the firm’s cash holdings. The negative corporate brand value–cash holdings relationship is empirically tested using Brand Finance’s brand valuation metric as the predictor. Based on a pooled cross-section time-series design of up to 115 firms across 10 years, we find: that (1) support for the predicted negative association between brand value and cash holdings and (2) that the long-term cash holdings elasticity of brand value is between − 0.16 and − 0.22. Interestingly, these results are not replicated when using a traditional consumer-based brand equity measure. This study informs the debate on whether and how brand assets can impact firm cash holdings, reaffirms that results are sensitive to the operationalization of brand assets, and recognizes a new role for brands—as a “downside risk” (not variance) management tool for the top management team. An overarching implication of this research is that brands should be viewed as a firm-wide strategic asset with a sphere of influence that transcends the marketing function.

Cash demand and financial literacy: A case study using Japanese survey data

Understanding the statistical relationship between cash demand and financial literacy is important in addressing policy concerns in Japan because the government has tried to reduce cash demands for day-to-day transactions and hoarding. However, few scholars have investigated this point because the available statistics on household cash demand do not contain the standard proxy variable for financial literacy and they do not distinguish cash demands among various households for day-to-day transactions and hoarding. Findings from this research fill these gaps by first imputing the missing financial literacy variable from other surveys and then by comparing the distribution of cash holdings for the high, middle, and low levels of financial literacy groups. In comparing the distributions of cash holdings by the three groups, cash distributions were also compared after dropping the observations above higher percentiles, expecting that the cash demand for hoarding would show up in the higher percentile of the cash distributions. Thus, it was possible to examine cash demands for day-to-day transactions. A comparison of the distribution of the ratio of cash demands to total financial assets holdings plus cash demands (hereafter cash ratio) across three levels of financial literacy groups was also made. It was found that a person with a higher level of financial literacy tends to have a large amount of cash holdings, perhaps mainly for the sake of hoarding; however, the person also tends to have other kinds of financial assets and thus a lower cash ratio value. Taking those findings at face value, the promotion of financial literacy and cashless payments for day-to-day transactions would reduce the relatively small amount of cash demands for day-to-day transactions, but it would not necessarily reduce the amount of cash demands for hoarding.

PENGAKUAN DAN PENGUKURAN TRANSAKSI WAKAF PRODUKTIF PADA LEMBAGA WAKAF (STUDI KASUS: YAYASAN BAITUR RAHMAH SEJAHTERA SIDOARJO)

This research aims to analyze the recognition and measurement concepts on productive waqf transaction in Baitur Rahmah Sejahtera Foundation Sidoarjo. Baitur Rahmah Sejahtera Foundation is an institution which the main activity are collecting, organizing, and distributing infaq, shadaqah and waqf. This research uses qualitative method with case study using observation, interview and documentation by collecting financial report from the treasury. The result of this research shows that waqf collection transaction is recognized as the acceptance of cash waqf and is measured based on the cash value received from the wakif. The collection of land-benefit waqf is not recognized and clearly measured, making it difficult to identify the magnitude and value of the land to which the benefits are derived. The distribution of waqf to GO Fish and Chicken Resto business is acknowledged as distribution productive waqf. The results of the management of productive endowments submitted to mauquf 'alaih are recognized as channeling of productive waqf and measured at the value of cash handed over.Keywords: Productive Waqf, Recognition, Measurement, Land-Benefit Waqf, Cash Waqf

CEO overconfidence and corporate cash holdings

This study proposes chief executive officer (CEO) overconfidence to be an alternative explanation to corporate cash holdings. We find positive effects of CEO overconfidence on the level of cash holdings and the value of cash, which are mainly due to the investment environments faced by firms. The positive effects of CEO overconfidence on cash holdings level and cash value are barely affected by the traditional motives of cash holdings based on trade-off and agency theories. The analysis of cash sources further explains why firms with overconfident CEOs can aggressively pursue risky investments and maintain large cash holdings at the same time. Although the prior literature indicates that overconfident CEOs tend to avoid equity issues for their capital investments, the contribution to cash savings from equity is higher than that from debt. Additional robustness tests also support our empirical findings.

Value of cash and accounting conservatism: The role of audit quality and firm growth

The primary aim of the present research was to fill the significant gap in the accounting literature, which is widely acknowledged, regarding the association between conservative accounting and the...

The Difference between Modigliani–Miller and Miles–Ezzell and its Consequences for the Valuation of Annuities

This paper addresses the differences between the Modigliani-Miller [M&M] model (1958, 1963) and the Miles-Ezzell [M&E] model (1980, 1985). The main difference between these two models concerns the stochasticity of the free cash flows. While M&M assume a strictly stationary process, M&E’s process is a martingale. However, this subtle difference has not been fully exposed, and previous literature has produced partly erroneous statements or inconsistent valuation models. Therefore, the main objective of this paper is to illustrate and accentuate the effect of these two mutually exclusive stochastic processes on the timely behavior of cash flows, discount rates, and values of the firm, equity, debt and tax shield. For this purpose, we perform a numerical experiment that allows the determination of values and discount rates by means of the risk-neutral approach. We show that in the M&E model, all cash flows and values are path-dependent, while they are not in M&M’s world. Furthermore, in M&E’s model all discount rates are time-invariant, except for the discount rate applied to tax shields, which depends on the lifetime of the cash flows. Contrary, in the M&M setup, all discount rates change across time, except for the constant discount rate of the tax shield. This has consequences for the applicability of the well-known present-value formula for annuities and for building consistent valuation models for both finite and perpetual cash flows.

A Q Theory of Internal Capital Markets

We propose a tractable model of dynamic investment, division sales (spinoffs), financing, and risk management for a multi-division firm facing costly external finance. Our main results are: (1) within-firm resource allocation is based not only on the divisions’ productivity—as in standard “winner picking” models—but also their risk; (2) firms may choose to voluntarily spin off productive divisions to increase liquidity; (3) diversification can reduce firm value in low liquidity states, as it hampers liquidity management; (4) corporate socialism makes liquidity less valuable; (5) division investment is determined by the ratio between marginal q and marginal value of cash.

Hydrograph Study of Palu River Watershed

Hydrograph is a way of predicting the amount of flood discharge plans in a watershed. Each watershed has different drainage characteristics due to the topographic shape of the watershed, land use, river typology (length, number, and slope), height and duration of rainfall. This research was conducted in Palu River Basin, with a basin area of 3. 060,388 km2, mismatch analysis of watershed and synthetic unit hydrograph, rain and discharge analysis, hydrograph discharge design analysis using optimal synthetic unit hydrograph parameter model. From the results of research calculation of Synthetic Unit Hydrograph Nakayasu Method has big enough key compared with another method. By using hydrograph model of flood plan for Palu River Watershed with the approach of Synthetic Unit Hydrograph Nakayasu, hydrograph calculation of flood in Palu river watershed, obtained alpha coefficient equal to 0,651 and Tr coefficient 0,3 with cash value model 71,491%. with cash value model 71,491%.

Assessing the Impacts of Future Climate on Cotton Production in the Arizona Low Desert

HighlightsCotton yield was reduced significantly under projected future climate conditions for the Arizona low desert (ALD). Of all the weather variables, yield reduction was primarily due to projected increases in daily maximum and minimum air temperatures.Cotton reproductive stages were more susceptible to heat stress than vegetative stages. Projected increases in air temperature may result in a slight increase in cotton growth or biomass production; however, heat stress significantly reduced fruit retention, leading to lower boll number and yield.Although future increases in CO2 may improve plant growth and productivity, the potential benefit of CO2 fertilization on cotton growth and yield in the ALD was offset by the projected increase in air temperature.The projected average seasonal irrigation requirement increased by at least 10%. This suggests that greater demand for freshwater withdrawal for agriculture can be expected in the future. Therefore, given the projected change in future climate, cotton cultivars tolerant of longer periods of high air temperature, changes in planting dates, and improved management practices for higher water productivity are critical needs for sustainable cotton production in the ALD.Abstract. Cotton is an important crop in Arizona, with a total cash value of approximately $200 million for fiber and cottonseed in 2018. In recent years, heat stress from increasing air temperature has reduced cotton productivity in the Arizona low desert (ALD); however, the effects of future climate on ALD cotton production have not been studied. In this study, the DSSAT CSM-CROPGRO-Cotton model was used to simulate the effects of future climate on cotton growth, yield, and water use in the ALD area. Projected climate forcings for the ALD were obtained from nine global climate models under two representative concentration pathways (RCP 4.5 and 8.5). Cotton growth, yield, and water use were simulated for mid-century (2036 to 2065) and late century (2066 to 2095) and compared to the baseline (1980 to 2005). Results indicated that seed cotton yield was reduced by at least 40% and 51% by mid-century and late century, respectively, compared to the baseline. Of all the weather variables, the seasonal average maximum (R2 = 0.72) and minimum (R2 = 0.80) air temperatures were most correlated with yield reductions. Under the future climate conditions of the ALD, cotton growth or biomass accumulation slightly increased compared to the baseline. Irrigation requirements in the ALD increased by at least 10% and 14% by mid-century and late century, respectively. Increases in irrigation requirements were due to an increase in crop water use; hence, greater demand for freshwater withdrawal for agricultural purposes is anticipated in the future. Therefore, cotton cultivars that are tolerant of long periods of high air temperature and improved management practices that promote efficient crop water use are critical for future sustainability of cotton production in the ALD. Keywords: . Arid region, CSM-CROPGRO-Cotton, Future climate, Gossypium hirsutum L., Heat stress, Irrigation demand.

Corporate Governance and Cash Holdings: Evidence from Worldwide Board Reforms

Using staggered board reforms as a quasi-natural experiment and a difference-in-differences approach, this study examines the impact of corporate governance on cash holdings in 41 countries. We find that board reforms are followed by significant reductions in cash holdings. This effect is more pronounced for firms with weaker pre-reform corporate governance and for firms from countries with weaker institutional environments. Analysis of cash spending suggests that, following board reforms, firms are more likely to use cash to increase R&D expenditures, dividend payouts, and share repurchases, but not to increase capital or acquisition expenditures. Finally, the results indicate that enhanced corporate governance following board reforms leads to higher cash values.

Temporary Workers and Cash Holdings

We investigate the effect of firm reliance on temporary workers on cash holdings by exploiting the quasi-natural experiment created by a temporary worker protection law in South Korea which requires firms to change a worker’s status to full-time once the worker has been employed at the firm for two years. Although the law passage increases the rigidity of labor costs, firms that relied more on temporary workers prior to the law strategically lower their cash holdings afterward. This occurs because the law passage raises the likelihood that workers not belonging to a union become union members. The negative effect of the law on cash holdings is driven by firms for whom lower cash holdings provide more credible evidence that a firm is unable to concede to union demands and by firms with lower ex-ante operating leverage. The stock prices of unionized firms which rely more on temporary workers react negatively to the law passage and stock market participants value cash holdings less highly for these firms. Lastly, we show that low cash holdings and using subcontracting are complement mechanisms that firms in South Korea use to decrease union bargaining power.

Gestão do ciclo financeiro, rentabilidade e restrições financeiras

Neste artigo adaptamos um modelo padrão de gestão de ciclo financeiro para estabelecer hipóteses mensuráveis para um universo diverso daqueles normalmente estudados em trabalhos empíricos de finanças: empresas de capital fechado. Primeiramente, a partir do modelo geral de relação entre ciclo financeiro, prazo médio de pagamento, prazo médio de recebimento e prazo médio de vendas e resultado operacional das empresas brasileiras de capital fechado, definimos hipóteses que relacionam medidas de lucratividade, como retorno sobre ativo (ROA) e retorno sobre patrimônio líquido (ROE) e medidas do ciclo financeiro. A amostra final é um painel de 318 empresas brasileiras de capital fechado que publicaram informações contábeis em pelo 8 de 9 dos exercícios fiscais entre 2009 e 2017. Para lidar com a endogeneidade entre as variáveis contábeis, estimamos regressões via métodos generalizados de momentos (generalized methods of moments – GMM). As evidências indicam que melhoras no ciclo financeiro melhoram ROA mas não ROE. Hipóteses adicionais incluem: (1) empresas com ciclo financeiro negativo tendem a crescer mais rápido; (2) empresas mais endividadas têm melhor gestão do ciclo financeiro; (3) empresas menores têm ciclo financeiro maior; e (4) empresas com maior ciclo financeiro devem ter maior margem operacional. A principal evidência é que a diminuição no CCC leva a um aumento do retorno sobre ativo (mas não ROE). Outras regressões mostram que somente o ROA afeta o custo do endividamento das empresas, e que o nível de endividamento das empresas é relevante do ponto de vista estatístico para explicar o crescimento da receita das empresas (efeito esse que provavelmente captura o tamanho das empresas). Ainda assim, sem endividamento por parte das empresas, há um menor crescimento das vendas. No final, também encontramos que há relação positiva entre gestão financeira e operacional, uma relação inesperada.