Effect Of Cash Holdings Research Articles

Expansionary monetary policy and corporate investment in an emerging market

Purpose The purpose of this paper is to investigate the effect of monetary loosening on corporate investment in an emerging market. Design/methodology/approach The paper begins this study by using a dynamic model to investigate the effect of monetary loosening on corporate investment. This paper uses money supply growth as a proxy for monetary loosening, as the State Bank of Vietnam relies mainly on a quantity-based policy. Next, this paper continues to analyze whether cash holdings are able to mitigate this effect. Finally, this paper examines the effect of monetary loosening on investment smoothing and the mitigating role of cash holding. The research sample includes 4,868 from 617 firms. This paper uses different regression techniques (i.e. pooled ordinary least squares clustered by firm, fixed effects, random effects and system generalized method of moments). Findings The research findings show that money supply growth is positively related to both corporate investment and investment smoothing. The effect of monetary loosening on corporate investment is mitigated by corporate cash holding. Moreover, this paper finds that the mitigating effect of cash holdings is stronger for financially constrained firms and non-state-owned enterprises. Originality/value Prior studies only focus on corporate investment under-tightening monetary policy; however, there is no research on firm investment under monetary loosening in an emerging market.

Corporate cash holdings and total factor productivity – A global analysis

Studies concerning total factor productivity (TFP) have investigated the effect of TFP on economic growth from a country-level perspective, which is a critical issue in the macroeconomics field. Few studies have examined how corporate financial decisions influence TFP from a firm-level perspective. Specifically, no extant studies have investigated how cash holdings affect firm productivity. This study utilizes data for firms in 65 countries during 1993–2017 to investigate the effect of cash holdings on TFP from a corporate perspective. The findings show that firms with higher cash holdings can enhance TFP. The results hold after considering endogenous problems, financial constraints, financial crises, corporate governance, institutional quality, and financial development as well as various robustness tests. Furthermore, we examine whether firms consistently invest their cash holdings into research and development (R&D) expenditures enhances firm productivity. The evidence indicates that higher cash holdings lead to steady increases in R&D expenditure, which improves firms’ TFP.

Cash holdings and profitability of banks in developed and emerging markets

We examine the effect of cash holdings on bank profitability using a worldwide database. Unlike previous studies, we model it as a non-monothonic relationship. We consider as a proxy for banks’ profitability the return on equity and the return on assets. Our results show that there is a non-monotonic relationship between the cash conversion cycle and bank profitability. Also, we show that banks in emerging markets (BRICS) hold more cash than banks in developed countries (G7). Moreover, our results reveal an increase in the banks’ cash holdings after the 2008 financial crisis.

A Liquidity Redistribution Effect in Intercorporate Lending: Evidence from Private Firms in Poland

Purpose: We examine the mechanism of intercorporate lending outside the business group, and a reaction of capital expenditures (CAPEX) and capital engagement in other firms to shocks in the provision of such loans. We diagnose the causes and effects of intercorporate lending outside the business group. Design/Methodology/Approach: We use panel data from annual reports (balance sheets and income statements) of 4,600 private Polish companies that provided loans to other firms in the period 2003-2014. We apply the vector autoregression panel model for microeconomic data and analysis of Granger causality, impulse response functions, and forecast error variation decomposition to explore the mechanism of intercorporate loan provision. Findings: Non-financial firms provide loans outside the business group through redistribution of their cash holdings generated from operating activity (cash flow) and long-term bank loans. The provision of loans by non-financial enterprises decreases CAPEX, as a result of the absence of free cash flows that were already used for loan provision. Shareholder loans substitute for capital engagement in other firms. Practical Implications: The findings could assist policymakers to notice that emergency borrowings from other companies are being used to defer defaults and introduce a new credit risk into the business sector. Originality/Value: The redistribution effect of cash holdings and money borrowed from banks provided to unrelated firms outside the business group is dangerous for the stability of the financial system due to the risk that these “indirect borrowers” will default.

Cash Holdings and Profitability of Banking Firms in Developed and Emerging Markets

We examine the effect of cash holdings on bank profitability using a worldwide database. Unlike previous studies, we model it as a non-monothonic relationship. We consider as a proxy for banks' profitability the return on equity and the return on assets. Our results show that there is a non-monotonic relationship between the cash conversion cycle and bank profitability. Also, we show that banks in emerging markets (BRICS) hold more cash than banks in developed countries (G7). Moreover, our results reveal an increase in the banks' cash holdings after the 2008 financial crisis.

The effect of cash holdings on firm performance: Evidence from Vietnam listed firms

The effect of cash holdings on firm performance: Evidence from Vietnam listed firms

The Effect of Cash Holdings on Firm Value in Export Companies Listed in the KOSDAQ

The Effect of Cash Holdings on Firm Value in Export Companies Listed in the KOSDAQ

Cash holdings, M&A decision and risk premium

In the market with financing friction, cash holdings enable the acquirers with financial constraints to decrease their external financing costs when they initiate M&A activities. This paper develops a real option model to demonstrate the effect of cash holdings on the acquirer’s M&A decision and then uses the pricing kernel technique to explore the role of cash holdings in the relation between M&A investments and the dynamic of risk premium on the acquirer’s assets. The results predict that, in the presence of financial constraints, higher cash holdings not only encourage the acquirer to initiate M&As at an earlier timing, but also leads to a more pronounced impact of M&A investments on the risk premium on the acquirer’s assets. The evidence from Chinese listed firms during 1998–2016 supports our theoretical predictions well.

The Effect of Cash Holdings on Credit ratings

The Effect of Cash Holdings on Credit ratings

The effect of cash holdings on firm performance in large Italian companies

AbstractThis paper examines the relationship between cash holdings and performance in Italy over 36 years. Specifically, in light of the presence of conflicting evidence concerning the worth of cash stock, which could lead to a positive effect rather than a negative one, the role of moderating factors that can shape the magnitude of this relationship is investigated. The results show that the value of cash holdings is affected by firm‐specific characteristics, as well as factors related to the institutional context. Although other studies have analyzed moderators one at a time, this is the first work to consider how they jointly work. When the moderators are considered together, some of them become no longer statistically significant while others become even more economically and statistically relevant.

The Effects of Cash Holdings on Future Firm Value through the Mediating Effect of Research and Development (R&D) Investment

This study empirically analyzes the effect of cash holdings on future firm value through the mediation effect of R&D (research and development) investment for Korean firms listed on the KOSPI from 2000 to 2016 using fixed effects panel regression analyses. The sample firms of 6,923 non-financial are classified into large firms and small ones depending on the firm size showing financial constraints. To estimate the effect of cash holdings on future firm value through the mediation effect of R&D investment, this thesis employs the model of Baron and Kenny (1986) by first analyzing the direct effect of cash holdings on future firm value, assessing then the effect of cash holdings on the R&D investment of firms and then evaluating the indirect effect or mediation effect of the R&D investment of firms on future firm value. Major results of this study can be summarized as follows. The cash holdings rate has a positive and significant effect on future firm value, implying that firms with higher cash holdings rate show higher future firm value. Also, the cash holdings rate has a negative and significant effect on R&D investment, implying that firms with a higher cash holdings rate show lower R&D investment. because firms use their cash holdings to invest in R&D. In conclusion, the positive effect of cash holdings on future firm value rises through its mediation effect of R&D investment. However, this mediation effect of R&D investment is evident in large firms only.

Intervening Effect of Cash Holdings in the Relationship Between Financial Performance and Dividend Policy

Many studies on relationship between financial performance and dividend policy have resulted to controversial outcome with few studies questioning the intervening effect of cash holdings. The purpose of this study was to evaluate the effect of cash holdings on the relationship between financial performance and dividend policy. The study applied positivism research philosophy and descriptive causal research design. The study was anchored on hypothetical view that the relationship between financial performance and dividend policy of firms listed at the Nairobi securities exchange is not intervened by cash holdings which was tested against a sample size of 31 firms listed at the Nairobi securities exchange selected using purposive sampling technique. The research findings were as follows: There was a significant direct association between operating cash flows and dividend policy which was intervened by cash holdings. In general it was concluded that the link between financial performance and dividend policy of firms listed at the Nairobi securities exchange was significant. The study outcome augment existing knowledge on financial performance and dividend policy for it is evident that firms with ability to generate income directly influence dividend payout ratio and therefore, top management should enhance financial performance and not dividend policy which is irrelevant. Cash holdings intervenes this relationship hence the level of cash balances maintained by the firm explain more on the reason why some firms pay more dividend on increase of profitability levels while others does not. Regulatory bodies such as Capital Market Authority and Centre for Corporate Governance use these research findings to improve their financial viability assessment approach of firms listed at the Nairobi securities exchange.

R&D investment, cash holdings and the financial crisis: evidence from Korean corporate data

ABSTRACTThis article examines the real effects of the financial crisis in 2008 on corporate R&D investment by analyzing firm-level panel data from 2005 to 2011 obtained from KIS-VALUE, a Korean corporate finance database. I estimate a dynamic panel model of R&D investment that includes an after-crisis dummy to reflect the effects of the external finance supply shock after the financial crisis, an interaction term of the dummy and cash holdings to measure the marginal effect of cash holdings after the crisis, investment opportunities (sales and the q ratio) and financial positions as the debt-equity ratio. The estimation implies a negative yet relatively small impact of the credit supply shock from the financial crisis on R&D investment and the mitigation of the negative impacts by cash holdings after the onset of the financial crisis, whereas the data show decreasing R&D investment and sales for the whole period. Based on the data and the estimation, I find that firms were able to lessen the pressure from diminishing market demand before the crisis using external finance, but they had to use internal financial sources after the crisis smooth R&D investment.

Corporate financial policy and the value of cash under uncertainty

PurposeThe purpose of this paper is to provide evidence on how firm-specific and macroeconomic uncertainty affects shareholders’ valuation of a firm’s cash holdings. This extends previous work on this issue by highlighting the importance of the source of uncertainty. The findings indicate that increases in firm-specific risk generally increase the value of cash while increases in macroeconomic risk generally decrease the value of cash. These findings are robust to alternative definitions of the unexpected change in cash. The authors extend the analysis to financially constrained and unconstrained firms.Design/methodology/approachThe authors test the hypothesis that the marginal effect of cash holdings on excess stock returns is sensitive to uncertainty. To compute this marginal effect, the authors adopt and extend the approach of Faulkender and Wang (2006) to the authors’ more elaborate model.FindingsThe findings indicate that different sources of uncertainty affect the value of cash holdings differently. Findings indicate that increases in firm-specific risk generally increase the value of cash while increases in macroeconomic risk generally decrease the value of cash. These findings are robust to alternative definitions of the unexpected change in cash. The authors also extend the findings to financially constrained and unconstrained firms.Originality/valueThe findings indicate that the source of uncertainty firm-specific vs macroeconomic risk matters. The two sources of risk may have quite different effects on shareholders’ valuation of a firm’s cash holdings. Results from alternative sources of findings are new. These new findings are robust to alternative definitions of the unexpected change in cash.

The Effect of Cash Holdings on Aggressive Tax Reporting : The Mediating Effect of the Firm's Financial Soundness

The Effect of Cash Holdings on Aggressive Tax Reporting : The Mediating Effect of the Firm's Financial Soundness

The Changing Effect of Cash Holdings on Firm Performance

This paper examines the relationship between cash holdings and performance. Specifically, in light of the presence of conflicting evidence concerning the worth of cash stock, which could lead to a positive effect rather than a negative one, the role of moderating factors that can shape the magnitude of this relationship is investigated. The results show that the value of cash holdings is affected by firm-specific characteristics, as well as factors related to the institutional context. Although other studies have analyzed moderators one at a time, this is the first work to consider how they jointly work. When the moderators are considered together, some of them become not statistically significant anymore while others become even more economically and statistically relevant.

What Are the Actual Effects of Cash Holdings? Evidence from the Mutual Fund Industry

We uncover the unintended consequences of cash holdings of mutual funds in the form of adverse selection associated with asset sales. We find that funds’ cash holdings can adversely affect the trading liquidity of their stock holdings. Facing investor redemption, cash poor funds are likely to engage in forced sale due to funding liquidity needs while cash rich funds are likely to sell voluntarily based on private information. Cross-sectional tests using stocks with different levels of information asymmetry, identification through exogenous change to the information environment, and placebo tests using index funds help us identify the adverse selection channel through which cash holdings affect the stock liquidity.

Factors Explaining Firm Investment: An International Comparison

<p>This paper examines the determinants of firm investment decision. Our study analysed four countries: Moldova, Romania, Russia and Serbia. The sample contains 170 firms for each country for a period of 8 years from 2003 to 2010. Using the data panels method, the empirical results indicate that profitability positively and significantly influences the firm investments for the markets of Moldova and Romania under two alternatives, and for the other countries under one specification. However, the positive effect of cash holdings is only observed for the firms of Moldova and Serbia. Furthermore, the higher the size of the firms of all countries is, the more the managers are encouraged to invest more. Finally, the sensitivity analysis of our models on activity sectors, shows differences in the factors explaining the investment decision for the market of Moldova. Indeed, profitability significantly and positively explains firm investment for the service and real estate sectors. This result is found for other countries for two sectors. In contrast, for country Russia, an increase in the profitability for mining and agriculture firms, does not stimulate managers to invest more.</p>

The Effect of Cash Holdings and Corporate Governance on Firm's Internationalization - Using Panel Data Analysis -

The Effect of Cash Holdings and Corporate Governance on Firm's Internationalization - Using Panel Data Analysis -

The Bright Side of Cash Holdings: Innovation Efficiency

We find that firms with higher cash-to-assets ratios obtain more patents and patent citations for a given amount of research and development expenditures. We propose that large cash reserves increase managerial incentives to innovate by reducing the risk to their career from undertaking innovative projects. To establish causality, we employ two quasi-natural experiments to identify exogenous stimulation of innovation. Difference-in-differences estimations support the causal impact of cash holdings on innovation efficiency. Further analysis reveals that the effect of cash holdings on innovation is stronger for firms with tighter financial constraints, lower institutional ownership, or poorer managerial compensation incentives.