Cash Value Research Articles

Vertical interlock and the value of cash holdings

AbstractWe test whether vertical interlock endangers cash resources that manifests in a lower value of cash in listed companies affiliated with business groups. Using a sample of 9,032 observations from 2007 to 2016 in the Chinese market, we find that investors tend to value cash holdings in companies with vertical interlock substantially less than in those without. The marginal effect of vertical interlock on the value of cash remains significantly negative after controlling for existing governance mechanisms, accounting conservatism and internal control quality, shedding light on agency problems between majority shareholders and minority shareholders within business groups of emerging markets.

Corruption and corporate cash holdings: international evidence

Although many prior studies document consistently negative effects of corruption on macroeconomic issues, the relationship between corruption and corporate financial decisions is debatable. In this paper, we investigate how corruption environment affects corporate cash holdings. With a sample of 199,333 observations across 46 countries, we find that corruption is positively associated with both cash holdings and the cash flow sensitivity of cash. Robustness tests with a reduced sample without US and Chinese firms, different measures of cash holdings and various regression approaches show that our research findings are stable. We also find that the effects of corruption are stronger if legal protection of shareholders is adequate. In addition, our additional analysis shows that corruption reduces value of cash. This paper shows that bribery motive of cash holdings is consistent around the world and firms tend to balance agency motive and bribery motive in their corporate liquidity management.

Optimal investment and endogenous payout strategy with time inconsistency

AbstractThis study extends the classical model to focus on a firm's optimal investment and endogenous payout strategies when a manager has time‐inconsistent preferences, which we describe by a quasi‐hyperbolic discount function. We attempt to reveal the impacts of time‐inconsistency on liquidation, external financing, credit lines, and risk management. The extended model predicts that the time‐inconsistent manager tends to (a) pay out cash to shareholders earlier by lowering the dividend payment, which causes the firm to hold less cash reserves and raise less equity; (b) invest less in the high cash and engage in much less costly asset sales in the low cash; and (c) choose not to hedge earlier than a time‐consistent counterpart. In addition, our model also shows that the manager's time‐inconsistent preferences decrease firm value and the marginal value of cash. These results highlight that corporate decisions, including payouts, cash holdings, investment, external financing, and even risk management strategies, are highly dependent on the manager's time‐inconsistent preferences.

(Dis)aggregated earnings forecasts and acquisition financing

Purpose The purpose of this paper is to examine how a firm’s mergers and acquisitions (M&A) goals influence its voluntary disclosure policy. Specifically, this paper examines how a firm’s M&A financing intentions influence the degree of aggregation in management guidance prior to and after the M&A transaction. Design/methodology/approach Using a logistic model, this study tests the relation between M&A financing and the decision to issue disaggregate earnings guidance for 3,929 acquiring firms from 2007 to 2011. Findings The logistic regression results show that firms are more likely to provide disaggregate earnings guidance when using mostly stock to finance M&A and that the incentives to disaggregate guidance vary throughout the M&A transactional window. Alternatively, because the value of cash is independent of the true value of the acquirer, the results show that firms offering mostly cash to finance M&A are less likely to issue disaggregate earnings forecasts. Additional analysis reveals that the decision to issue disaggregate earnings guidance also influences post-merger outcomes such as CEO turnover. Research limitations/implications The choice to disaggregate earnings guidance and the choice to use stock as a means to finance an acquisition is made by management, thus are endogenous which could introduce bias. Originality/value This study provides insights into management’s incentives and attitudes toward the use of management forecasts to effect a potential merger and acquisition. Given the flexibility management has in issuing voluntary forecasts, management can tailor a financial message toward investors and potential targets in attempt to facilitate a merger and acquisition and to further the firm’s goals.

Employment protection laws and corporate cash holdings

Abstract We study how employment protection laws (EPLs) affect corporate cash-holding decision. By exploiting within-country changes in EPLs across 20 OECD countries as a source of variation in labor adjustment costs, we show that following an increase in the stringency of EPLs, firms’ cash holdings increase significantly. This relationship is stronger for firms with high labor turnover, no multinational presence, or financial constraints, indicating that labor adjustment cost raising distress risk is the mechanism in play. Cash buffers created by firms faced with stricter EPLs help them mitigate the underinvestment problem in subsequent episodes of industry-wide distress. Consistent with this precautionary motive, the market's valuation of excess cash is positively associated with the EPL strictness. We further demonstrate that the response of cash policy to changes in EPLs is distinct from that of debt policy or investment policy. Our evidence highlights the role of interaction between labor-market and financial frictions in determining the level and the value of corporate cash.

Methodical approaches to the assessment of investment attractiveness of agricultural enterprises

Evaluation of investment efficiency is central to the process of justifying and selecting possible options for investing in investment projects, and is therefore a key to successful implementation of investment activities of agricultural enterprises. The main directions of financing of investment projects of agricultural enterprises are: purchase or construction of unfinished construction objects, new construction, expansion of existing enterprises, reconstruction of existing enterprises and technical re-equipment of existing enterprises. Two main groups of methods of assessing the cost-effectiveness of investment projects have become most widespread: static and dynamic. Static methods involve the calculation of indicators based on undiscounted cash flows. Dynamic methods, on the contrary, take into account the change in the value of money over time and imply bringing the values of all cash flows to the same period by discounting or compounding. Dynamic methods for assessing the effectiveness of investment projects include the following basic methods that rely on most modern Ukrainian enterprises, such as net present value cash flow (NPV), internal rate of return (IRR), payback period (DPP) and project profitability index (PI). On their basis the basic methods of selection of investment projects of agricultural enterprises are formed. Net Present Value (NPV) calculation. is based on comparing what will be invested in the future with what is invested now. The Profitabale Index (PI) is directly related to net present value and is defined as the ratio of the discounted cash flow to initial investment. The IRR (Internal Rate of Return) is the discount rate at which the projected cash inflows are equal to the project's discounted cash flows. As indicators of the effect in calculating the overall efficiency of investments, it is advisable to use changes in the following values of growth: revenue from the sale of enterprise products; gross income; profit before tax; net profit; cash flow; clean products. Gross and net investment should be included in the costs. The use of qualitative methods in investment analysis is due to the following reasons: the subjectivity of the phenomena or characteristics studied; lack or lack of necessary information; inability to analyze objective and acceptable methods; lack of research object (to be created during project implementation). Quantitative methods for evaluating agricultural investment projects include methods of probability theory and mathematical statistics, as well as economic and statistical methods.

Thinking through Style: Non-fiction Prose of the Long Nineteenth Century. Edited by Michael D. Hurley and Marcus Waithe. Oxford: Oxford University Press, 2018. Pp. xiv+359.

<i>Thinking through Style: Non-fiction Prose of the Long Nineteenth Century</i>. Edited by Michael D. Hurley and Marcus Waithe. Oxford: Oxford University Press, 2018. Pp. xiv+359.

АНАЛІТИЧНА ОЦІНКА ОБЛІКОВИХ ФІНАНСОВИХ ПОТОКІВ СУБ’ЄКТІВ АГРОБІЗНЕСУ

The article deals with the theoretical and practical aspects of estimating accounting cash flows that directly generate cash flow, influence and are managed by various actors in the agribusiness and the entire agro-industrial environment. After all, in the country where the agribusiness is concentrated, there are a number of unresolved issues in the field of research of agro-industrial enterprises, which led to the need for generalization and development of accounting and analytical support for the assessment of data of agricultural enterprises within accounting approaches to analytical evaluation. An analytical evaluation of the effectiveness of financial flow management is provided, which assures the enterprises in the process of its strategic and current development. The processes of agribusiness financial flows management and decision-making processes that should ensure a smooth process are considered. The liquid cash flow characterizing the absolute value of cash is investigated. The conceptual model of accounting and analytical support of financial recovery was used, as well as the analysis of the results of the activity of agribusiness entities. The results of the study showed that financial flow as an accounting category is divided over time into a series of payments with positive and negative value – that is, cash flows and their equivalents. Therefore, it is necessary to have an adequate system of accounting information, which will allow to use all available resources with maximum efficiency for effective development of agribusiness in Ukraine. Therefore, analytical valuation is an integral part of today, because there is such a situation that many domestic enterprises are not able to provide effective cash flow management without properly organized accounting and analytical assessment of financial flows of agribusiness entities. Optimization of valuation will allow to determine the most effective forms and conditions of implementation of current operations, as well as rational directions of assets and profit placement. Only a comprehensive approach will allow to ensure transparency of the estimation process of financial flows of enterprises and will facilitate timely decision-making in the process of its activity. Key words: accounting and analytical support, agricultural enterprise, accounting approaches, cash flows, liquid cash flow, accounting system.

Sustainability Improvement of Traditional Cropping System in Uttarakhand, India, through Intercropping with Medicinal nd Aromatic Plants

Crop production in mountain agriculture is in steady decline (5%–30%) over the past few decades. Only few species of cereals, pulses, potato, amaranth, etc. are important cash crops in the hilly regions of Uttarakhand, India. In traditional hill cropping systems, framers grow sesame, black soybean, corn, proso millet, amaranth, Brassica spp, etc. as mixed crop. These types of traditional cropping systems are not much advantageous and do not meet the requirements of the existing population. In the hilly regions Perilla, Hedychium, turmeric, industrial hemp, lemon grass, citronella, lavender, belladonna and other medicinal and aromatic plants (MAPs) have immense potential. However, they are still not a part of the cropping system. Introduction of these MAPs as intercrops with traditional crops will not only improve the production potential of main crops, but also generate additional income to the farming family. Besides immense cash value, these plants also have less/no threats from wild animals. Similarly, introduction of medicinal and aromatic crops with horticultural crops is one of the key options to enhance agriculture production, as topography and climate of Uttarakhand is suitable for growth of these crops.

Monetary loosening and cash holdings: Evidence from an emerging market

Vietnamese government consistently pursues an expansionary policy during the period from 2007 to 2017. In addition, as an emerging market, Vietnam monetary policy relies mainly on quantity-based mechanism. We investigate the effect of monetary expansion on corporate cash holdings in Vietnamese stock market. We argue that monetary loosening negatively affects cash holdings via both precautionary and transaction cost motives. With a sample of 4,503 observations from 751 firms, we find that money supply growth is negatively related to cash holdings, cash-cash flow sensitivity and value of cash.

E&amp;P Notes (October 2019)

E&amp;P Notes (October 2019)

A theoretical analysis connecting conservative accounting to the cost of capital

We connect conservative accounting to the cost of capital by developing an accounting model within an asset pricing framework. The model has three distinctive features: (1) transaction-cycle-conformity, where the book value equals the value of cash at the beginning and the end of a cash-to-cash transaction cycle; (2) a revenue recognition principle, where uncertainty affects the amount of revenues recognized; (3) a matching principle, where expenses are matched with revenue with a conservative bias due to uncertainty. We demonstrate how the growth rate of expected earnings, the accruals-to-cash ratio, and the expected earnings yield relate to the expected stock return.

Numerais na língua Mehináku (Arawak)

Nosso objetivo, neste trabalho, é apresentar uma breve descrição linguística do sistema numeral, ou seja, dos termos numéricos, na língua Mehináku (Arawak). Evidenciaremos, em especial, o modo de funcionamento do sistema de contagem nessa língua. Pela análise da língua Mehináku que fizemos até o momento, percebemos que essa língua apresenta 20 números, que correspondem aos dedos das mãos e dos pés, respectivamente, sendo somente três números autônomos e com radicais completamente distintos. São eles: pawitsa (um), mipiama (dois) e kamayukula (três). Todos os demais números são derivados destes primeiros. Mostraremos, ainda, informações relativas ao plural e ao coletivo, bem como os recursos neológicos criados pelos falantes da língua Mehináku para tratar de valores em dinheiro.

Sampling Error and the Joint Estimation of Imputation Credit Value and Cash Dividend Value

Since dividend imputation was introduced to Australia 32 years ago, researchers and corporate finance practitioners have debated the extent to which imputation credits are incorporated into share prices. One reason for divergence of opinions is the selective interpretation of coefficient estimates from regression. Sample observations exhibit little dispersion of corporate tax rates and franking percentages. This means that if noise in a sample leads to the value of cash being understated, the same noise is likely to lead to the value of credits being overstated. Using simulation analysis we show that there is an inverse relationship between estimates of credit value and cash value due to random variation in samples. This problem is exacerbated by a lack of independence across observations. Regression analysis has merit, provided inference accounts for the inverse relationship between estimates of cash dividend value and imputation credit value. We consider five studies which reported estimates of 0.34 to 0.57 for imputation credit value and 0.73 to 0.88 for cash dividend value. The implication of our simulation analysis is that it would be incorrect to claim that cash is fully valued, but that imputation credit value lies within the range of 0.34 to 0.57. This would represent selective interpretation. A researcher cannot claim to have a reliable sample and research method which allows interpretation of one coefficient, but at the same time ignore the implications of other coefficients from the same sample and research method. The evidence suggests that, if cash is in fact fully valued by the market, then sampling error leads to the coefficient on cash (0.73 to 0.88) being understated and therefore the coefficient on credits (0.34 to 0.57) being overstated.

A Transparent, Numerical Solution to the Joint Estimation of Imputation Credit Value and Cash Dividend Value

Multiple regression analysis leads to coefficient estimates that need to be jointly interpreted. This holds even if correlation amongst independent variables is at a level that researchers typically consider to be tolerable. In estimating the value of imputation credits using multiple regression, experts and regulators have typically considered estimates of the value of imputation credits in isolation. They apply the credit value estimates to pricing models under the assumption that cash is fully valued by the market. We call this problem selective interpretation. We address the challenge of selective interpretation by conducting an advanced “if-then” analysis. We ask if cash and credits are truly valued by investors at x and y, then what range of regression coefficients would occur if the regression could be repeated over and over again? This allows us to estimate confidence intervals for the value of cash dividends and imputation credits by making transparent assumptions about the independence of observations and the non-constant variance of error terms. Our paper has application to any research that relies on multiple regression analysis. The practical implication is that in the current tax regime, under which investors can receive a cash rebate for imputation credits, the market value of imputation credits lies within the range of 0.01 to 0.15. A dollar of cash is valued by the market at somewhere between 87 cents and 92 cents. But, at the lower end of the cash value (0.87), credits are worth between 0.13 and 0.15, and, at the higher end of cash value (0.92), credits are worth between 0.01 and 0.10. The value of imputation credits has moved over time in a direction consistent with the changing tax treatment. Prior to the introduction of the 45-day rule, credits had an estimated value within the range of 0.07 to 0.24, but the value decreased to a range of just 0.00 to 0.02 once the 45-day rule was introduced. Upon the introduction of the cash rebate, the value of credits has increased to a range of 0.01 to 0.15.

Cash for contingencies: How the organizational task environment shapes the cash-performance relationship

What influence do external contingencies have on the strategic value of cash holdings? Employing a contingent perspective on resource-performance relationships, we test how the three dimensions of organizational task environments – environmental complexity, dynamism, and munificence – influence the strategic value of cash holdings. We argue that as versatile resources, cash holdings are most useful in complex and dynamic settings, as they facilitate strategic fit between firm and environment. By contrast, the value of cash is weakened in resource-rich environments, as the environment itself provides the resources for strategic fit. Results from our dynamic fixed-effects panel analyses support our theorizing, as they show that environmental complexity and dynamism strengthen the positive link between cash and performance, while environmental munificence attenuates it. We conclude that key environmental contingencies of a firm's organizational task environment indeed shape the cash-performance relationship.

When is cash king? International evidence on the value of cash across the business cycle

Precautionary-motive theory implies that corporate cash holdings should be valued at a premium during recessions when uncertainty is high. However, from an agency-conflict perspective, business downturns aggravate agency problems, and investors tend to discount the value of corporate cash holdings during recessions. We test two hypotheses derived from these competing perspectives by examining the value of cash across different phases of the business cycle, using a sample of firms from 41 economies over the 1991–2016 period. Our results show that $1 of cash is valued about $0.67–$0.70 higher during a boom than during a recession, supporting the agency-conflict hypothesis. Our analyses show that this effect is not sensitive to national uncertainty-avoidance tendencies but varies with different levels of investor protection. These results confirm that investors discount the value of cash during recessions due to concerns about severe agency conflicts, and that investor protection mitigates this discount.

기업의 비용구조가 현금의 한계가치에 미치는 영향

본 연구는 기업의 비용구조가 현금의 한계가치에 미치는 영향을 실증분석 하였다. 기업의 비용구조는 Lev(1974)와 Anderson et al.(2003)의 연구를 확장시킨 Kahl et al.(2012)과 Kulchania(2016)의 방법에 따라 측정하였고, 현금의 한계가치는 Faulkender and Wang(2006)의 주식초과수익률 결정모형으로 측정하였으며, 중요한 분석결과는 다음과 같다.BR 기업의 영업비용 중 고정비용의 비중이 큰 고정비용구조 기업은 변동비용의 비중이 큰 변동비용구조 기업보다 현금의 한계가치가 하락한다. 이러한 결과는 고정비용구조 기업이 고정비용 부담에 의한 채무불이행 위험을 예방하기 위해 현금 유동성의 안전망을 강화한다는 이유로 현금보유를 증가시킬 수 있으나, 주주들은 이러한 정책이 대리인 이론의 시각에서 기업가치를 훼손시킬 수 있다고 의심을 할 수 있다. 이에 따라 고정비용구조 기업의 경영자는 현금 유동성을 강화하는 차원에서 현금보유를 증가시킬 수 있으나, 이러한 정책이 대리인 문제를 발생시킬 수 있음을 유의해야 한다. 따라서 본 연구는 고정비용구조 기업의 현금보유는 고정비용 부담에 의한 채무불이행 위험과 대리인 문제를 동시에 발생시킬 수 있음을 시사하며, 기업의 비용구조와 현금보유 정책간의 관계에 대한 연구 문헌에 기여할 것으로 기대한다.

Bootstrapping mean‐squared errors of robust small‐area estimators: Application to the method‐of‐payments surveys data

AbstractThis paper proposes a new bootstrap procedure for mean‐squared errors of robust small‐area estimators. We formally prove the asymptotic validity of the proposed bootstrap method and examine its finite‐sample performance through Monte Carlo simulations. The results show that our procedure performs well and competes with existing ones. We also provide an application to the estimation of the total volume and value of cash, debit card, and credit card transactions in Canada as well as in its provinces and subgroups of households. In particular, we found that there is a significant average annual decline rate of 3.1% in the volume of cash transactions and that this decline is relatively higher among high‐income households living in heavily populated provinces. Our bootstrap estimator also provides indicators of quality useful in selecting the best small‐area predictor among several alternatives in practice.

Love and Money

In this essay Rorty argues that care or concern alone is inadequate for dealing with problems of Third World poverty; neither is there likely to be a convenient technological fix. There is no evading the hard decisions that global poverty will require of the rich nations, and there is no way past E. M. Forster’s dictum, in Howard’s End, that “We are not concerned with the very poor. They are unthinkable and only to be approached by the statistician or the poet.” Most of Rorty’s essay focuses on works of Forster demonstrating that, in Rorty’s words, “tenderness only appears . . . when there is enough money to produce a little leisure, a little time in which to love. . . . The cash value of the Christian ideal of universal brotherhood has, for the last two centuries, been the conviction that once science and technology have produced enough wealth—and enlightened, unselfish political initiatives have redistributed it—there will be no one left who is incapable of tenderness. All human beings will live in the light; all of them will be possible characters in novels.”