Increase In Cash Flow Research Articles

Financial decision dynamics: Environmental, social, and governance factors and managerial choices in emerging markets

This study examines the linkage between the ESG performance of firms and managerial decision-making. It uses 8 years of ESG performance data of 110 Indian firms collected from the Thomson Reuters database. The study finds that high ESG performance mitigates a firm’s cost of debt more than equity cost. Furthermore, increases in ESG performance are associated with higher capital expenditures, lower investment cash flow sensitivity, higher cash holdings, and lesser payout of increased cash flows to shareholders. The findings are in sync with the Slack resources view, suggesting that the requirement of financial Slack for ESG-related innovations and risk-bearing is large and impacts the major managerial decisions of firms. While the effects of environmental and social performance on these decisions are similar to that of the composite ESG performance, governance performance shows an independent impact on the payout decisions of firms. The Granger Causality test reveals a bi-directional association between debt issues and ESG performance. The main results obtained from the multiple panel regressions are robust to additional tests involving lead-lag analysis. The overall findings of this study highlight the importance of ESG performance screening in the managerial decision-making process of investors who would not like to risk growth potential for a short-term increase in dividends.

Green vs. brown: Climate risk showdown – who’s thriving, who’s diving?

Increasingly complex climate change poses unprecedented risks and challenges. We attempt to analyze the strategic responses of firms in dealing with climate risk and whether green firms outperform brown firms by exploring the relationship between climate risk and firms’ cash flow. To this end, this paper uses the high-dimensional fixed-effects model for empirical analysis based on panel data of Chinese listed firms from Q1 2010 to Q4 2022. We find that firms have the motivation to hold more cash in the face of climate risk, and that brown firms will be more proactive in cash flow management compared to green firms. In addition, there are significant industry and seasonal effects of climate risk on firms’ cash flow. Mechanism tests find that climate risk prompts firms to increase cash flow by forcing them to reduce financial leverage and erode operating costs, as well as by inducing increased media attention to the firm. Heterogeneity analysis shows that the positive effect of climate risk on cash flow is more significant among low digital transformation firms, high financial constraints firms, firms with low managerial myopia, and SOEs. An analysis of the economic consequences shows that climate risk leads firms to be more aggressive in capturing market share, increasing productivity and strengthening ESG performance. The above findings help to enlighten firms on how to manage their risk exposures and adjust their internal governance structures as a way to maintain stable operations in an environment of intensified uncertainty. In brief, this paper highlights the differentiated financial decisions that green and brown firms make in response to climate risk, providing empirical evidence and policy implications for advancing the green transformation of firms.

REIT Growth, Valuation and Performance

The extent to which a real estate investment trust’s (REIT’s) physical growth is related to market valuation and performance is examined. Using a sample of U.S. equity REITs over the 1995–2020 period, we measure a REIT’s growth as the growth of its total area in square feet (or, alternatively, its number of properties) and find that fast-growing REITs, while able to increase cash flows, are unable to increase such cash flows with equal proportionality with the expansion of their physical footprint. In essence, the growth in cash flow while positive is lower than the growth in square feet or number of properties. Moreover, we find no evidence that growth alone is associated with stock performance. However, we show that rapidly growing REITs are associated with higher market valuation, measured by capitalization rates, Price/FFO ratio, and firm Q. These findings suggest that capital structure, managerial actions and potential for improved property level performance associated with scale rather than physical growth alone play major roles in REIT valuation. Overall, our findings are aligned with expectations for market efficiency in a highly transparent asset group such as equity REITs.

How does corporate investment respond to trade policy uncertainty in China? The role of political connections

This paper investigates how political connections affect the relationship between trade policy uncertainty and corporate investment by utilizing Chinese non-financial firm-level data from 2003 to 2022. We find that trade policy uncertainty inhibits corporate investment by decreasing expected cash flows, increasing cash flow uncertainty, and lowering investment returns. Political connections mitigate the adverse impact of trade policy uncertainty on corporate investment by increasing government subsidies, alleviating financing constraints, and improving investment inefficiency for firms. The results are robust to changing variables measurements, alternating econometric model settings, and addressing endogeneity concerns. We also find the adverse impact of trade policy uncertainty on corporate investment is more pronounced for non-state-owned firms and small-sized firms, and the positive role of political connections benefits firms with higher financing constraints, lacking bank-firm relationships, and regions with lower institutional quality. Our findings highlight that optimizing the business environment and strengthening the communication between firms and governments are crucial for coping with unexpected policy uncertainty shocks.

The Impact of Foreign Direct Investment on Economic Growth in Jordan: A Study of the Period 1978-2021

Objective: This paper aims to measure the impact of foreign direct investment on economic growth in Jordan during the period (1978-2021), based on a set of standard tests that will help clarify the relation between the variables of the study. Theoretical Framework: This paper proposes to examine the benefits of an open market economy based on trade and investment liberalization. The focus will be on factors that attract foreign direct investment, such as improving GDP, infrastructure, and political stability. These factors significantly impact employment rates, technology transfer, export development, and balance of payments. Method: The study used Eviews-9 to estimate a suitable linear model. A unit root test using ADF methodology indicated stationary variables at I(0) level. The Johansen methodology was used to perform a joint integration test, which showed that the two variables were complementary according to the Trace Test and Maximum Eigenvalue. Results and Discussion: After estimating the results of the equation using the Ordinary Least Squares regression (OLS), the results indicate that if the percentage of foreign direct investment increases by 1%, the GDP increases by 0.05%. All transactions are statistically significant at a level less than (0.01). R2 also indicates that FDI explains 18% of changes in GDP. Research Implications: Foreign direct investment is crucial for developing countries like Jordan, as it helps increase cash flows. Jordan strives to create favorable laws to attract more investments. Originality/Value: The study compared Jordan's case with previous studies and found similarities and differences. Jordan's political, security, and geographical situation, along with continuous development of investment-related legislation, made it more fortunate than others.

The Credit Channel of Public Procurement

Public procurement accounts for one-third of government spending. In this paper, I document a new mechanism through which government procurement promotes firm growth: firms use procurement contracts to increase cash flow based lending. I use Portuguese administrative data from 2009 to 2019 and exploit public contests as a source of quasi-exogenous variation in the award of procurement contracts. Winning one additional euro from a procurement contract increases firm credit by 7 cents at lower interest rates. This finding highlights a mechanism through which future fiscal stimulus can impact the real economy today: procurement contracts increase firms’ net worth by increasing future cash flows that can be used as collateral to ease borrowing constraints and boost corporate liquidity. Consequently, this enhanced access to credit promotes higher investment and employment, with these effects being more pronounced and persistent in smaller and financially constrained firms. At the aggregate level, I empirically estimate that spending one additional euro in public procurement increases regional output by 1.3 euros with the credit channel accounting for 5% of it.

Foreign exchange risk and audit pricing: Evidence from U.S. multinational corporations

Foreign exchange volatility challenges auditors for not only demanding more audit efforts but also imposing heightened audit risk. We first show foreign exchange risks increase cash flow uncertainty and reduce financial reporting quality, supporting our premise that foreign exchange risks increase audit risk. Next, we find audit fees are higher for MNCs with greater exposure to foreign exchange volatility, but not when MNCs use financial hedging against foreign exchange risk. Furthermore, we show that the impact of foreign exchange risk on audit fees is attenuated by auditor MNC expertise, auditor busyness, and MNC’s operation diversity, whereas the impact is exacerbated for companies facing high pressure to avoid missing earnings targets and for auditors with high market concentration. Overall, our study provides novel evidence of the implications of MNCs’ exposure to foreign exchange risk on financial reporting and auditing, thereby enriching our understanding of MNCs.

Is a tax deductibility of R&D investment always good for a firm? The case of IPO underpricing

We examine the impact of an R&D tax deduction policy on initial public offering (IPO) underpricing. Our findings suggest that IPO firms subject to the tax deduction policy (treatment firms) exhibit higher underpricing than those not subject to the tax deduction policy (control firms). The results are robust to alternative metrics of underpricing. We attribute to the worsening information asymmetry and agency conflicts in the treatment firms relative to the control firms due to an increase cashflows from tax savings. Additional analysis suggests that the effect is more salient for IPO firms with high information asymmetry and severe agency conflicts.

Financial Analysis on United Airlines Holdings, Inc.

This report provides a comprehensive financial analysis of United Airlines Holdings, Inc. (UAL) for the fiscal year 2022. In 2022, UAL demonstrated a robust financial performance, through notable improvements in liquidity, profitability, and solvency indicators. The analysis reveals that UAL sustained strong liquidity, benefiting from increased cash flow and enhanced current ratios. The company's profitability metrics exhibited substantial growth, driven by effective cost management and revenue optimization. Additionally, this study shows that UAL prudently managed its debt load, reinforcing solvency ratios, however, they should keep improving their debt management in the following years. In the recent dynamic aviation industry landscape, UAL exhibited adaptability and strategic acumen, with a focus on sustainable growth. This report also emphasizes UAL's competitive positioning and resilience in a challenging market environment in comparison with its four peers. This financial analysis offers valuable insights for investors and stakeholder, underscoring UAL's solid financial foundation, strategic adaptability, and a promising and positive financial prospect in the airline industry.

Strategy creation behaviour and “last gasp” digitalization as predictors of sales performance and cash flow

PurposeAlthough recent literature has examined diverse measures adopted by SMEs to navigate the COVID-19 turbulence, there is a shortage of evidence on how crisis-time strategy creation behaviour and digitalization activities increase (1) sales and (2) cash flow. Thus, predicated on a novel strategy creation perspective, this inquiry aims to investigate the crisis behaviour, sales and cash flow performance of 528 SMEs in Morocco.Design/methodology/approachNovel links between (1) aggregate wage cuts, (2) variable operating hours, (3) deferred payment to suppliers, (4) deferred payment to tax authorities and (5) sales performance are developed and tested. A further link between sales performance and cash flow is also examined and the analysis is conducted using a non-linear structural equation modelling technique.FindingsWhile there is a significant association between strategy creation behaviours and sales performance, only variable operating hours have a positive effect. Also, sales performance increases cash flow and this relationship is substantially strengthened by e-commerce digitalization and innovation.Originality/valueTheoretically, to the best of the authors’ knowledge, this is one of the first inquiries to espouse the strategy creation view to explain SMEs' crisis-time behaviour and digitalization. For practical purposes, to supplement Moroccan SMEs' propensity to seek tax deferrals, it is argued that debt and equity support measures are also needed to boost sales performance and cash flow.

Socioemotional wealth and cash flow sensitivity of cash: Evidence from India

This paper examines the controlling shareholders’ propensity to increase Cash flow sensitivity of cash in Indian firms. We hypothesize that the controlling shareholders’ tendency to preserve the socioemotional wealth increases cash flow sensitivity of cash in the Indian firms. Using a sample of Indian firms during 2001–2019, we find that controlling shareholders increase the cash flow sensitivity of cash. Controlling shareholders increase cash flow sensitivity of cash to avoid accessing any form of external capital that may threaten the dispersion of their socio-emotional wealth or increase oversight. We further find that this relationship is stronger in the non-business group affiliates. We observe that the socioemotional wealth of the controlling shareholders takes precedence even in the presence of access to lower cost of capital. Preliminary analyses also observe the means through which controlling shareholders preserve wealth in Indian firms. The results are robust to alternate measures of socioemotional wealth of the controlling shareholders and endogeneity concerns.

Patent trolls and capital structure decisions in high-tech firms

Under the growing threat of patent trolls, high-tech firms face substantial legal fees, increased cash flow volatility, and greater expected costs of distress. I show that the exposure to patent litigation leads to overly conservative capital structures in high-tech firms. My identification exploits a 2017 U.S. Supreme Court decision limiting the ability of patent trolls to seek favorable venue outside the defendant's incorporating state. Following the decision, firms incorporated in states with strong anti-patent troll laws increased leverage. The effects are driven by high-tech firms, the premier targets of patent trolls. Decreased cash flow volatility, especially in treated firms closer to financial distress, provides a key economic channel for my results.

Government audit supervision, financialization, and executives' excess perks: Evidence from Chinese state-owned enterprises

In recent years, the phenomenon of corporate financialization has become increasingly prevalent in China. This paper uses data from Chinese state-owned listed firms from 2006 to 2018 to investigate whether large-scale financial investments by companies facilitate executives' excess perk consumption, and whether government auditing, as an important component of the national governance system, can play a governance role in this behavior. The results show that corporate financialization behavior significantly exacerbates executives' excess perks, and government auditing can mitigate the effect of corporate financialization on executives' excess perk consumption. We find that increased cash flow is the mechanism by which financialization behavior positively affects executives' excess perks. Furthermore, this study reveals that the implicit corruption of state-owned enterprise executives through corporate financialization is primarily based on compensation psychology, which will reduce the effectiveness of monetary compensation contracts. However, government auditing can effectively constrain this influence.

MIND THE GAAP: DETERMINANTS OF U.S. AIRLINE OPERATING CASH FLOWS

ABSTRACT The airline industry in the United States relies heavily on strong liquidity and solvency positions to fund an array of short and long-term variable and fixed costs ranging from cabin crew salaries to aircraft lease payments and debt service. Against the backdrop of these ongoing needs for cash is the ever-present risk of extraneous and expeditious demand shocks such as pandemics, terrorist incidents, and surging fuel costs. It is thus an imperative that airlines monitor their operating cash flows closely, especially when considering that many financial performance metrics are accrual-based and do not always paint a completely accurate picture of a firm’s true cash position. This study hypothesized and investigated significant determinants of operating cash flows for publicly-traded US airlines and found a statistically significant relationship between airlines operating cash flows and their total assets, income from operations, and market capitalization; which account for a large proportion of the variance in operating cash flows. This study is imperative to helping airlines understand the major determinants of operating cash flows as they look to recover from the pandemic and increase cash flow as well as maintain robust liquidity and solvency positions to fund an array of variable and fixed costs. Keywords Airlines, Operating Cash Flows, Accruals, Pandemic, Liquidity, Solvency

Key Factors to Increasing Free Cash Flow for Manufacturers Utilizing Lean Production: An AHP-DEMATEL Approach

This paper aims to apply AHP and DEMATEL to analyze the key factors and interrelationships of lean production to increase free cash flow for manufacturers. The AHP hierarchy was determined through literature and interviews with leading management experts. The assessment criteria were categorized into five major criteria and 15 sub-criteria, including production, sales, human resources, R&D, and finance. According to the AHP results, the first eight key factors were identified as the key factors to increasing cash flow for manufacturers who utilized lean production. DEMATEL was used to identify the interactions among the eight key factors and further identify the four more important ones. The four key factors are strategic planning, strategic deployment, leadership, and goal orientation. This paper proposes management implications and improvement suggestions for the four key factors and their interactions.

A comparative study on the tax and fee reduction policies for sustainable development: Empirical analysis from the world’s three major economies in tackling COVID-19

The global COVID-19 epidemic in 2020 has caused a significant drop in many countries’ employment rates and economies. Numerous countries have implemented a number of tax and fee reduction policies in response to the COVID-19 epidemic. This essay analyzes the tax and fee policies and results of the three largest economies in the world—China, the United States, and Japan—in response to COVID-19 between 2020 and 2021. We will first compare the effects of tax and fee reduction policies horizontally across China, the US, and Japan. The second step is to compare the effects of tax and fee reduction policies. According to the study, China, the United States and Japan have each implemented separate tax and fee policies in response to COVID-19. The United States primarily provides corporate income tax, personal income tax relief, and increased social welfare and subsidies that reduce the tax burden of enterprises, stimulate the vitality of enterprises, increase the disposable income of residents, stimulate consumption, and thus promote economic growth; Japan primarily provides income tax, consumption tax and business tax relief to reduce the cost of consumption for residents, increase corporate profits and cash flow, restore economic growth and stabilize employment. China primarily provides tax relief for VAT, corporate income tax and social security funds. It indirectly lowers the selling price of products, reduces the operating costs of enterprises, increases personal disposable income, stimulates consumption, promotes the growth of business performance and plays a certain role in curbing inflation. Based on the empirical analysis of the impact of different tax and fee reduction policies on the economy and employment in China, the United States and Japan, it is of some relevance for other countries. Therefore, in response to COVID-19 or major emergencies, each country can formulate targeted tax and fee reduction measures based on its own national conditions to support economic growth and stable employment.

Study on Oil Price Change, Internal Regulation and Profitability Index -- Taking Oil Exploitation Industry of China as an Example

The objective of this paper is to study the relationship between the change of oil price and the profitability of Chinese oil mining enterprises. This paper collects the relevant data of China’s oil exploitation industry and listed companies from 2011 to 2020, and makes an empirical study by using the standard value weight method and regression analysis method. The conclusions are as follows: (1) from 2011 to 2020, the average annual decline of international oil price is 6.71%, which significantly weakened the profitability of Listed Companies in China’s oil exploitation industry. (2) From 2011 to 2020, the average annual decline of gasoline prices in China is 2.61%. However, due to the implementation of the “minimum price” policy by the Chinese government, the profitability of Listed Companies in the oil exploitation industry has not decreased, but increased. (3) From 2011 to 2020, the internal control level of Listed Companies in China’s oil exploitation industry continued to decline, which was significantly negatively correlated with profitability. (4) Listed companies in China’s petroleum exploration industry adhere to the concept of sustainable development, pay attention to scientific and technological investment, effectively operate assets, increase cash flow and control costs. These measures have significantly improved the profitability of enterprises.

Do price-earnings multiples for firms with patterns of increasing earnings vary with the quality of the earnings pattern?

ABSTRACT Prior research finds that firms with patterns of consecutive earnings increases are rewarded by market participants with higher Price-Earnings (P/E) multiples, and that some firms manage earnings to sustain the earnings stream. We propose several fast and inexpensive heuristics to classify firms as suspect or non-suspect of maintaining the stream through earnings management and examine whether market rewards differ for suspect and non-suspect firms. We find higher P/E multiples for firms with a pattern of increasing earnings supported by the same pattern of increasing cash flows (non-suspect). This is an important result as it shows that cash flows can be used to assess the quality of earnings in scenarios prone to earnings management, where earnings quality is expected to be low. We also find lower price-earnings multiples for firms suspected of using accrual-based earnings management, sales manipulation, and overproduction to achieve the earnings pattern.

Customer concentration, leverage adjustments, and firm value

AbstractWe examine the relationship between customer concentration and capital structure adjustment speed using a sample of US listed firms from 1977 to 2020. We found that the customer‐concentrated firms have a lower speed of leverage adjustment. Customer concentration affects leverage adjustment speed mainly through increased cash flow volatility and asset specificity. The negative association is more pronounced in firms with high relationship‐specific investments and low switching costs for their customers. Stock market reacts to leverage deviation strongly for firms with concentrated customers. Our findings highlight the vital role of customers as key stakeholders in capital structure decisions.

특허출원이 회사채 신용등급에 미치는 영향

In this study, we investigate the effects of patent applications on corporate bond ratings of Korean listed firms. Using an ordered probit regression, we show that firms with higher patent counts and greater patents to R&D investments are likely to have significantly higher bond ratings. This finding remains robust while considering the differences of firms with patenting versus without patenting, and adopting alternative variables measured by industry-adjusted numbers of patent applications. We further explore two possible channels through which patent applications affect corporate bond ratings. First, patent applications provide expectations for increased cash flows with debt market. Second, patent applications enable improved redeployability of assets held by firms. Through a series of analyses, this study sheds lights on the real effects of patenting activities on the debt market via firms’ bond ratings.