Internal Cash Research Articles

Government intervention and firm investment

This paper examines how government intervention affects firms' investment and investment efficiency, focusing on the world's largest economic stimulus package (ESP) during the 2008 global financial crisis period. The RMB four trillion ESP aimed to restore the economy by promoting investment in priority areas. Thus it provided an exogenous shock to firms' investment environment and exacerbated the impact of government intervention on firms' investment and investment efficiency. We use propensity score matching to match government-intervened firms with their controls to reduce the endogeneity issue of government intervention. Our difference-in-differences analysis shows that government-intervened firms invested more than control firms. Further analysis shows that the source of funding for investment was mainly from bank loans rather than internal cash flows. However, the post-investment performance was poor. We find that the investment efficiency of government-intervened firms decreased and government-intervened firms overinvested after the ESP. Our results are robust to alternative model specifications and placebo tests. The findings suggest that government intervention can play a negative role in government-intervened firms.

Government Spending Shocks and Firm Innovation

Increases in defense spending – the largest portion of discretionary government spending in the United States – are negatively associated with private sector firm innovation. We show that the extent to which defense spending hinders innovation is dependent on a firm’s cash flow sensitivity to consumer demand. The negative effects are stronger for firms with low tangible collateral that rely on internal cash flow to finance projects. The demand mechanism operates independently of resource diversification and public debt crowding-out mechanisms documented in prior studies. Our results are robust to alternative measures of firm innovation and different estimation methodologies.

CAPITAL EXPENDITURE DECISIONS: A STUDY OF MALAYSIAN LISTED COMPANIES USING AN ORDERED LOGISTIC REGRESSION ANALYSIS

Capital expenditure (capex) decisions have been extensively studied except in developing countries (Mansor and Hamidi, 2008). Capex implicitly affects institutional aggregate demand, gross national product and business cycles. This research focuses on the capex decisions by Malaysian public listed companies (PLCs) between the years 2002 to 2006. Using the Pecking Order Hypothesis (POH) and Managerial Hypothesis (MH) frameworks, four independent variables are examined. These are (i) internal cash flows (ICF); (ii) Insider Ownership (I_O); (iii) Investment Opportunities (IOP); and (iv) the interaction effects of the variables. In addition, sales revenue is used as a control variable. Both hypotheses predict a positive effect of (IFC) on capex. However, their arguments differ in relation to the effects of (I_O) on capex. MH argues for a negative relationship but POH proposes no effect between the two. POH suggests a positive effect of (IOP) on capex whereas MH predicts no relationship between them. Using a pool Ordered Logistic Regression (OLR) model, capex is categorised into five ordinal categories and the control variable is divided into four groups, which are ranked to capture the variability of the capex. The result of this study shows that the (ICF) has a positive and significant effect on capex, and this finding supports both studied hypothesis. However, (I_O) and (IOP) show a negative and significant effect on capex. The study also found that there is a conflict of interest between managers and shareholders base on the negative coefficient of (I_O). This finding is consistent with Kim (2006) and supports the MH. This study provides mixed-support for the two hypotheses and reveals interesting characteristics with regards to the managerial style in Malaysian PLCs.Keywords: capital expenditure, managerial style, Malaysian public-listed companies, ordered logistic regression, group effect

Characteristics of R&D expenditures in Japan's pharmaceutical industry

Characterized by a high level of R&D expenditure, pharmaceutical firms are also subject to specific risks that are reflected in their financial policies. In contrast to other firms, whose investments are directly related to internal cash flows, Japanese pharmaceutical companies do not appear to rely on this source of funds to undertake R&D investments. Our analysis reveals that R&D expenses largely depend on the firm's size and the strength of its balance sheet. More precisely, high levels of debt appear to hold back R&D expenditure, especially when debt has a short-term maturity. These results highlight the importance of funding risky investments with the adequate type of capital to avoid putting firms in financial distress. Despite the risk, R&D investments seem to be justified by the fact that they are generally associated with higher sales growth. However, the difficult conditions prevailing in Japan's pharmaceutical industry make these benefits less visible.

CORPORATE GOVERNANCE AND FINANCIAL CONSTRAINTS IN FAMILY CONTROLLED FIRMS: EVIDENCE FROM MALAYSIA

The hypothesis of financial constraints suggests that firms will be denied profitable investment dueto inaccessible to external capital markets as debt and equity financing are no longer perfectsubstitutions after firms utilize internal capital. In view of reduced investments during globalfinancial crisis in 2008-2009, the study investigates 157 firms, whether they face the issues offinancial constraints in Malaysia. In general, non-family firms rely heavily on the external debtmarket while family controlled firms utilizing internal cash and reducing their dependence on debtmarket for their investments, confirming financial constraints in family firms. However, thepresence of CEO duality does not exaggerate the problem of financial constraints, but rather leadsfamily firms to become stagnant in their investments. Independent directors appear to beineffective in governing family firms in issuing finances for investment. Apparently, their presencein family firms reduces firms’ investment opportunities either through internal cash and externaldebt financing, which could reduce shareholders’ value in the long-term.Keywords: Investments; Financial Constraints; Corporate Governance; Duality; IndependentDirector; Family Controlled firms.

Optimizing Investment in Two-Sided Platforms

Platform owners need to manage its internal cash flow as investments on buyer side and on seller side. Investment on buyer side will increase using experiences and investment on seller side can create an atmosphere of innovation. It is much necessary to allocate and optimize the total investment on each side users so as to obtain maximal profit. A three-period game model is developed to find the optimal investment decision. And during the process, we find that platforms can be divided into four kinds as investment non-sensitive platform, Seller-sensitive platform, Buyer-sensitive platform, and Investment sensitive platform. It is also found that the platform system structure influences the distribution of total value on platform owner, buyer side, and seller side.

SUSTAINABLE GROWTH OF NONFINANCIAL FIRMS: MICROECONOMETRIC EVIDENCE FROM PAKISTAN

This research has investigated the sustainability of growth of nonfinancial firms in case of Pakistan. For this purpose, explanatory variable of earnings per share and total assets turnover were used as controlling factors and liquidity, size and cash flows were used as independent variables. Balanced panel of 27 firms with 24 annual time dimensions has been used from 1988 to 2011. Model specification criteria were in favour of pooled least squares but due to heterogeneity of firms, fixed effect model was opted for. The results of research were robust against internal growth but not robust to sustainable growth indicating that, in case of Pakistan, the leverage impact, which is the key difference between internal growth and sustainable growth might be playing some unexplained role for the growth of nonfinancial firms. For steady, regular and internal growth, liquidity and cash generation ability are playing a significant role but fail to support growth in the long run and in a sustainable way.

The Application of Empirical Study in Accounting Education: An Example of Internal Control and Cash Dividend

As an important development trend for accounting higher education, accounting empirical teaching plays a fundamental role in enriching and improving researching methods in accounting fields. This paper starts from the relationship between internal control and cash dividend policy, combines with author’s accounting teaching experience for years, follows the general research ideas of questions raising, questions analysis, questions solving, and from the aspects of theoretical analysis, literature review, research hypothesis, research methods, empirical process and results discussion to make a detail description on accounting empirical teaching methods and process. The results show that there is a significant positive correlation between internal control and cash dividend policy, and this kind of correlation shows different influence intensity according to the difference of company nature. Through the research of this paper, it can make the relevant educator further clarify the process and methods of the accounting classroom empirical teaching, which is of great significance to popularize and enhance the application of accounting empirical research methods in accounting field.

ANALISIS PENGENDALIAN INTERN SISTEM PENERIMAAN DAN PENGELUARAN KAS DALAM MENINGKATKAN KUALITAS LAPORAN ARUS KAS

Cash receipts and expenditure controlling are important in a company, because cash it self is the most important assets account, that also has an important position in funding company operations.In analyzing some data, the writer using qualitative method. Using both primary and secondary data. This research collecting data technique using field research with interview, observation, and documentations.The examp results showing that internal cash receipts controlling has been effective enough,contraty with the internal expenditure cash controlling system. In cash disbursment system a writer still found some factors than wasn’t fully work yet. Such as double function beetween receiving, storing, and cash register. There still no function splitting between cash and petty cash. Cash on hand and cash register are both uninsured. Klinik Utama Bandung Eye Center in general already compile cash flow report based on PSAK No. 2, that compile report with indirect method.

The persistency and volatility of the firm R&D investment: Revisited from the perspective of technological capability

The persistency and volatility of firm R&D investment has been a popular research subject for the R&D management field; however, previous research has found mixed evidence concerning the persistency and volatility of firm R&D investment. This paper empirically reveals the reason for the conflicting arguments among researchers by considering each firm’s technological capability. The influence of technological capability on R&D investment differs depending on positive and negative shocks, and this influence can be the key to understanding heterogeneous R&D behavior across firms.The results show that technological capability amplifies the internal cash flow effect and cause volatility in R&D investment when sales increase over the sales of the previous year; positive shocks. However, technological capability offsets the internal cash flow effect and causes persistency in R&D investment when sales decreases from the sales of the previous year; negative shocks. These imply that R&D investment is not a dichotomous decision between persistency and volatility and is conditional on each firm’s technological capability.

Global Cash Flow Sensitivities

We examine the role of a country’s institutional framework for investment and financing activities. A country’s financial structure, investor rights, and legal environment are important determinants of the relation between internal cash flow and firms’ investment and financing behavior. Firms from countries with a more developed institutional framework exhibit higher financing cash flow sensitivities. These firms are more likely to substitute a cash flow shortfall with equity issues. Conversely, firms’ investment-cash flow sensitivity is higher in countries with a less developed institutional framework.

Financial constraints in search equilibrium: Mortensen Pissarides meet Holmstrom and Tirole

A key lesson from the Great Recession is that firms’ leverage and access to finance are important for hiring and firing decisions. It is now empirically established that bank lending is correlated with employment losses when credit conditions deteriorate. We provide further evidence of this and make causal inferences on the effect of leverage on job losses drawing on a new firm-level dataset that we assembled on employment and financial positions of European firms. Yet, in the Diamond Mortensen Pissarides (DMP) model there is no role for finance. All projects that display positive net present values are realized and financial markets are assumed to be perfect. What if financial markets are not perfect? Does a different access to finance influence the firm’s hiring and firing decisions? The paper uses the concept of limited pledgeability proposed by Holmstrom and Tirole to integrate financial imperfections and labor market imperfections. A negative shock wipes out the firm’s physical capital and leads to job destruction unless internal cash was accumulated by firms. If firms hold liquid assets they may thus protect their search capital, defined as the cost of attracting and hiring workers. The paper explores the trade-off between size and precautionary cash holdings in both partial and general equilibrium. We find that if labor market frictions disappear, so does the motive for firms to hold liquidity. This suggests a fundamental complementarity between labor market frictions and holding of liquid assets by firms.

Internal Capital Markets in Times of Crisis: The Benefit of Group Affiliation in Italy

Firms affiliated with business groups survive the stress of the global financial and euro crises better than unaffiliated firms. Using granular data from Italy, we show that better performance stems partly from access to an internal capital market, as the survival value of group-affiliated firms increases with group-wide cash flow. Internal cash transfers increase when banks’ health deteriorates, with funds moving from cash-rich to cash-poor firms and, some evidence suggests, to firms with favorable investment opportunities. Internal capital markets’ role thus increases when external markets (banks) are distressed.

A dynamic approach to accounts receivable: the case of Jordanian firms

This paper studies the trade credit policy of firms for a sample of Jordanian listed firms in the period 2000–2014. In addition, this paper tests whether the accounts receivable decisions follow a model of partial adjustment. The generalized methods of moments estimation results suggest that firms have a target accounts receivable level and move toward this target quickly. In addition, we find that short term finance, internal cash flow, positive sales growth, product quality, and profitability are playing an important role in the trade credit policy. The study recommends that firms must pay attention to their relationship with customers because they represent an important investment opportunity. Furthermore, firms should maintain close relationships with banks because it influences their trade credit policy.

Banking system reform and investment–cash flow relation: Case of a small transition economy

This research examines the effect of banking system reform which is measured by foreign bank's presence on investment–cash flow relation in a context of a small transition economy. The U-shape relation between investment and cash flow is found. We also find evidence that the presence of foreign banks in Vietnam results in decreasing in dependence on local banks and has changed corporate investment behaviors. Company investments are less reliant on internal cash flow in the post reform period. Although overinvestment of state controlled firms is not reduced but underinvestment problem of non-state-controlled listed firms is mitigated due to better accessibility to bank loans. The investigated relation between investment and leverage is robust for this conclusion.

Regional Financial Developments and Research and Development Investment–Cash Flow Sensitivity: Evidence on Chinese Public High‐Tech Companies

AbstractIn a sample of 485 Chinese public high‐tech companies, we show that the R&D investment is significantly dependent on internal cash flow. Based on the sizable discrepancies of stock market and financial intermediary developments in the East, Middle and West regions of China, empirical estimation provides strong evidence that the financial developments in both credit and equity markets have large effects on reducing financing constraints. The effects are most significant in the financially advanced East region of China.

Impact Makers (a): The Newman's Own of Management Consulting

This case requires students to evaluate alternative dual-share-class corporate structures that allow companies and entrepreneurs to pursue profit with purpose. The case explores Impact Makers, an IT consulting company based in Richmond, Virginia. While original founders of the firm hold all voting rights, the cash flow rights belong to two nonprofits setting the stage for a Newman's Own model of management consulting. The case discusses whether and how the alternative corporate structure aids the firm's overall strategy to attract top-quality employees, pay them competitive salaries, and provide superior service to its clients while donating 100% of its lifetime value to charitable causes, largely through partnerships with various nonprofit organizations. More importantly, the case asks students to evaluate how such a dual-share-class and dual-purpose company can raise capital to fund continued growth. The case opens with CEO Michael Pirron reminding himself of all the questions he had run through to execute a strategy to further grow Impact Makers' consulting business both through expanding a menu of services and through conquering new geographical markets. To do either, or both, the company needed a cash infusion. Internal cash was limited, as up to 40% of it flowed to charitable partners, demonstrating Impact Makers' commitment to its mission. Raising debt for a company without fixed assets was challenging and time consuming. Complicating it all was that being structured as a nonstock corporation rendered equity raising difficult. Could Impact Makers raise money to grow and stay true to community values at the same time? Excerpt UVA-F-1797 Rev. Jul. 25, 2019 Impact Makers (A): The Newman's Own of Management Consulting I'm a fiscal conservative, and I don't believe in unbridled capitalism. Impact Makers is how I could best use my skills, experience, and training to go to work every day and make an impact in the world and change the world. That's not why everyone is here, but that's why I'm here. —Michael Pirron Michael Pirron was looking in a mirror thinking about the difficult task he had at hand. Nine years earlier, in 2006, he founded a new type of company, Impact Makers, with the help of $ 50, a single client, and a laptop. On the surface, the company was no different than any other IT consulting company: it attracted top-quality employees, paid them competitive salaries, and provided superior service to its clients. What was different was that the company was committed to donating 100% of its lifetime value to charitable causes, largely through partnerships with various nonprofit organizations. In 2015, Impact Makers reached annual revenue of $ 17.8 million and had cumulatively contributed more than $ 1 million to local charities since 2006. By any standards, Pirron's built-from-scratch model had made a significant impact on the local community. But was it enough? . . .

Debt and Financial Performance of REITs in Malaysia: A Moderating Effect of Financial Flexibility

Curiosity in bank debt financing decision was primarily inspired by the perceptible contradiction between the REITs’ unique operational business structure particularly REITs in Malaysia (M-REITs) and the finance theory of capital structure decision. The Trade Off Theory implies that the financing strategy of using debt provides no value in REITs entity with a marginal tax rate of zero. The use of debt by REITs entity is seen to be a puzzle in numerous REITs literature as REITs do not have tax shield benefit of using debt. High dividend payout requirement constraints REITs ability to retain its internal earnings and have to use debt to undertake growth strategies. The moderating effect of financial flexibility in a relationship between bank debt financing and the financial performance are examined and presents new empirical evidence on the role of the financial flexibility. The study offers some important insights into the debt financing decision for M-REITs. Using the unbalanced panel data from all M-REITs for the period from 2005 to 2014, this study reveals that size has strong positive relationship with debt financing, smaller M-REITs prefer to use short term debt, diversified M-REITs is found to have lower debt as compared to focused M-REITs, growth in investment and liquidity has positive relationship with bank debt financing while internal cash constraints and cash flow volatility has a negative relationship with debt financing. The results of this study indicate that both Pecking Order Theory and Trade Off Theory complements each other in explaining the M-REITs debt financing decision and less supportive for Agency Theory. This suggests that the use of debt as a disciplinary tool seems to be less crucial for M-REITs entity with high mandated dividend payout requirement. Indeed, the high payout requirement behaves as a “disciplinary tool” in M-REITs. The results on the relationship between debt and financial performance reveal that both short term and long term debt are negatively related to financial performance, liquidity is found to be an important factor on M-REITs’ financial performance and size have no relation with financial performance. Financial flexibility positively moderates the relationship between debt and financial performance. The findings retrieved from this study serve as a useful guide to M-REITs’ managers to manage the financial flexibility as it has important moderating effects on debt and financial performance relationship.

Hospital Capital Investment During the Great Recession.

Hospital capital investment is important for acquiring and maintaining technology and equipment needed to provide health care. Reduction in capital investment by a hospital has negative implications for patient outcomes. Most hospitals rely on debt and internal cash flow to fund capital investment. The great recession may have made it difficult for hospitals to borrow, thus reducing their capital investment. I investigated the impact of the great recession on capital investment made by California hospitals. Modeling how hospital capital investment may have been liquidity constrained during the recession is a novel contribution to the literature. I estimated the model with California Office of Statewide Health Planning and Development data and system generalized method of moments. Findings suggest that not-for-profit and public hospitals were liquidity constrained during the recession. Comparing the changes in hospital capital investment between 2006 and 2009 showed that hospitals used cash flow to increase capital investment by $2.45 million, other things equal.

Regional Financial Developments and Research and Development Investment Cash Flow Sensitivity: Evidence on Chinese Public High-Tech Companies

In a sample of 485 Chinese public high-tech companies, we show that the R&D investment is significantly dependent on internal cash flow. Based on the sizable discrepancies of stock market and financial intermediary developments in the East, Middle and West regions of China, empirical estimation provides strong evidence that the financial developments in both credit and equity markets have large effects on reducing financing constraints. The effects are most significant in the financially advanced East region of China.