Level Of Cash Holdings Research Articles

The impact of audit committee financial expertise on corporate financial decisions

Audit committee (AC) financial experts is considered one of the important corporate governance mechanisms due to their vital role in overseeing companies’ financial reporting procedures and enhancing corporate financial decisions. Regulators and policymakers require Omani firms to have at least one director with financial expertise sitting on ACs. Therefore, we aim to investigate the effect of AC financial expertise on corporate financial decisions (capital structure, dividend payment and cash holdings). We use a data set of all Omani financial institutions (36 firms) listed on the Muscat Stock Exchange (MSX) over the period from 2014 to 2019, consisting of 216 firm-year observations. The paper contributes to the growing body of the literature by being the first study to examine the impact of AC financial expertise on financial decisions. The study also contributes to the literature by integrating multiple theories: agency, resource dependence and signalling, to enlighten the effect of the unique power of financial expertise on making financial decisions. We find that AC members with financial expertise are positively related to the level of cash holdings, leverage and dividend payment in financial companies. The findings provide empirical evidence to regulators to encourage companies to exceedingly appoint financial experts as AC members due to their unique resources, which improve their monitoring role and constraining management opportunistic behaviour

산업 내 경쟁유형이 기업의 현금보유수준과 투자비효율성간의 관계에 미치는 영향

산업 내 경쟁유형이 기업의 현금보유수준과 투자비효율성간의 관계에 미치는 영향

Bidirectional Relationship Between Cash Holdings and Financial Performance for Banks in the MENA Region

This study examines the interrelationship between cash holdings and financial performance by firstly investigating whether the existence of an optimal cash level maximizes financial performance and secondly measuring the impacts of financial performance over the optimal level of cash holdings. This study uses a sample of 400 financial institutions in the Middle East and North Africa (MENA) region across 18 different countries over 15 years (2003–2017). The results support the hypothesis about the positive impact of cash holdings over the financial performance as well a positive influence for financial performance over the existence of an optimum level of cash holding. The analysis supports this association through a robustness test by controlling the culture variables based on Hofstede's model as well as through using different alternative measures for cash holdings. This study is one of the original empirical studies that measure the interrelationship between holding cash and the level of financial performance through the banking sector in the MENA context.

What Drives the Liquidity of Industrial Firms?

We investigate the cash management policy of Turkish industrial firms during the period 1998–2018. Our findings indicate the relative stability of cash holdings of industrial firms with a mean of 12.84 per cent of total assets, which is higher compared to other Turkish firms. Overall, cash flow, sales growth, leverage, net working capital and capital expenditures are the main drivers of cash holdings. We examine the effect of one of the indicators of asymmetric information—earnings quality score on the level of cash holdings. The results show that firms with high earnings quality score tend to hold a high level of cash due to operational use. Finally, we conclude that the drivers of cash holdings also differ in firms with high versus low earnings quality score.

Cash level and corporate performance: evidence from the Gulf Cooperation Council countries

This study aims to examine the connection between cash level and corporate performance, as well as the cash level determinants for all nonfinancial firms in the Gulf Cooperation Council (GCC) countries. The empirical analysis employs numerous statistical techniques such as panel regression models and the Generalized Methods of Moments (GMM). The main result of the study confirms a positive relationship between the cash level and both the corporate performance and the firm value, which signifies the role of cash in supporting the corporate productive activities in times of rare cash. The results also show that large firms, especially those with less leverage, experience better corporate performance. Additionally, the results demonstrate that when using different levels of cash holdings as well as different levels of firm size, both the magnitude and the significant positive effect of the cash level on corporate performance and firm value are not altered. For the determinants of the cash level, the results confirm that the most important variables are product competition, free cash flow, corporate liquidity, capital expenditures, and financial constraints. The results do not confirm that the amount of dividend paid has a significant influence on the cash level. All results are robust to the various econometric specifications employed in this study. AcknowledgmentThis study is supported by Kuwait University research sector, grant number IF-03/18.

Cash management and performance of index mutual funds

ObjetivoEl objetivo de este estudio es analizar la relación existente entre la gestión de efectivo y el desempeño consiguiente en las carteras de fondos de inversión indexados.Diseño/metodología/perspectivaUtilizando una muestra de 104 fondos que replican el índice bursátil Standard and Poor's 500 desde enero de 1999 hasta diciembre de 2016, se emplean carteras hipotéticas que invierten en fondos similares y diferentes análisis de regresión para analizar las diferencias en las rentabilidades ajustadas mensuales entre fondos indexados que gestionan diferentes niveles de efectivo en sus carteras. Por motivos de robustez, se tienen en cuenta diversos subperiodos y estados de mercado, así como otros factores exógenos y características de los fondos que afectan tanto al nivel de efectivo mantenido en la cartera indexada como al desempeño de la misma.ResultadosLos resultados muestran que los fondos indexados que gestionan niveles de efectivo más elevados experimentan un desempeño significativamente menor que otros fondos comparables que mantienen menores porcentajes de efectivo en sus carteras de inversión. Se obtiene una evidencia similar tras considerar diferentes subperiodos y momentos alcistas y bajistas de mercado, así como al considerar los gastos propios de cada fondo y otras variables que podrían afectar esta relación entre el rendimiento y el efectivo gestionado.Originalidad/contribuciónEste estudio contribuye a la literatura existente que analiza la gestión de efectivo en la industria de fondos de inversión. Más específicamente, los análisis se centran en carteras de fondos que replican un índice bursátil específico, dado que las diferencias en sus rendimientos en este tipo de fondos no deberían originarse por la evolución del mercado, sino a causa de factores relacionados con la gestión de sus carteras y otros componentes exógenos al índice bursátil. Estos hallazgos son de interés para gestores e inversores que pretendan mejorar sus rentabilidades ajustadas al invertir mediante una estrategia tan diversificada como un índice bursátil.

Research on the relationship of control level and corporate cash holdings: The moderating effect of property right

Cash holding is an important area of corporate financial management. Reasonable cash holding can help a company improve its competitiveness and development prospects. This paper examines the link between control level and cash holdings in different level intervals, and the regulating effect of ultimate controller characteristics on the relationship between control level and cash holdings. The results show that it is a nonlinear relationship between the control level and corporate cash holdings, which first decreases, then rises and then decreases. The nature of ultimate controller can enhance the relationship between the control level and cash holdings, and the negative correlation between control level and cash holdings is stronger in non-governmental control company than in governmental control company. The influence of control intensity on relationship decreases with the increase of control level. The study has certain reference significance for enterprises to optimize the level of cash holdings and improve the efficiency of resource allocation.

Financial statement comparability and cash holdings: the mediating role of disclosure quality and financing constraints

PurposeThe purpose of this study is to examine the impact of financial statement comparability as a qualitative feature of financial reporting on cash holdings and the mediating role of disclosure quality and financing constraints in firms listed on the Tehran Stock Exchange (TSE).Design/methodology/approachUsing panel data from 110 TSE-listed firms from 2011 to 2017 in Iran, this study uses the regression analysis to examine the research hypotheses. The first hypothesis examines the relationship between financial statements comparability and cash holdings and two other hypotheses examine the mediating role of financing constraints and disclosure quality in this relationship.FindingsBased on pecking-order theory and institutional context of Iranian firms, the results show that financial reporting comparability has a significant negative impact on corporate cash holdings. The results also show that disclosure quality and financing constraints have no mediating role in the relationship between accounting comparability and cash holdings. The robustness tests with alternative measures of accounting comparability and cash holdings support the findings of this study.Research limitations/implicationsThe limitations of this study are as follows: limited number of TSE companies that have necessary data to conduct research; and using the disclosure quality scores provided by TSE organization.Practical implicationsThe findings suggest that creditors should consider the financial status and also the quality of financial reporting of companies, before granting credit to them. It is also recommended that regulators in the capital market publish the ratings of companies in terms of financial statement comparability alongside the disclosure ratings and a continuous regulatory oversight on companies.Originality/valueTo the best of the authors’ knowledge, this is the first empirical research on the effect of accounting comparability on the level of cash holdings that examines the mediating role of financing constraints in the context of Iran market as an emerging economy. Moreover, this is the first empirical research that studies the effect of disclosure quality on this relationship.

Firms cash management, adjustment cost and its impact on firms’ speed of adjustment: a cross country analysis

We investigate the firms’ specific attributes that determine the difference in speed of adjustment (SOA) towards the cash holdings target in the Scandinavian countries: Denmark, Norway and Sweden. We examine whether Scandinavian firms maintain an optimal level of cash holdings and determine if the active cash holdings management is associated with the firms’ higher SOA and lower adjustment costs. Our findings substantiate that a higher level of off-target cost induces professional managers to rebalance their cash level towards the optimal balance of cash holdings. Our results reveal that Scandinavian firms accelerate SOA towards cash targets primarily for the precautionary motive. Moreover, our results show that SOA is heterogeneous across Scandinavian firms based on adjustment cost and deviate cash holdings towards the target mainly with the support of internal financing. Furthermore, our empirical findings show that the SOA of Norwegian firms is significantly higher than the Danish and Swedish firms.

Do Firm Characteristics and Industry Matter in Determining Corporate Cash Holdings? Evidence from Hospitality Firms

The study investigates a recent surge of cash literature by using a sample of hospitality firms to gain a new understanding of corporate cash holdings. Past literature states that there is a substantial variation of liquidity across industry groups. Existing literature predominantly refers to US-listed firms and focus on either hotels or restaurants and not the hospitality industry as a whole. Therefore, we provide a comparative study of cash holdings behaviour between hospitality and non-hospitality firms from an emerging market context. Using a sample of public listed hospitality firms from 2002 to 2013, dynamic panel regression techniques are used to study the relationships between firm characteristics and cash levels. Also, the non-parametric Wilcoxon-Mann-Whitney test was carried out to examine the time and sectoral differences in cash holdings. In addition, the panel regression techniques are used to investigate the relationships between firm characteristics and level of corporate cash holdings. The results reveal that firm characteristics do matter in hospitality firms. We find that firm size, capital expenditures, and liquid assets substitutes are negatively related to cash level. The results support trade-off theory and the pecking order theory. This study incrementally explains the cash holdings behaviour of hospitality firms in emerging market.

Transient Institutional Ownership, Costly External Finance, and Corporate Cash Holdings

We investigate how transient institutional ownership influences the level and value of cash holdings. We show that transient institutional ownership has a positive effect on cash holdings, and this linkage is more pronounced when stock and credit market conditions are less favorable. Transient institutions exacerbate debt-holder-shareholder conflicts (e.g., short-termism) and increase stock price crash risk, thereby increasing the cost of debt. Overall, our results suggest that transient institutions make cash holdings more valuable because financing by debt becomes more costly.

Geographical diversification and corporate liquidity in Malaysia: a quantile regression approach

PurposeThis paper aims to examine the effect of geographical diversification on corporate liquidity in Malaysian firms. Liquidity is represented by both cash and working capital.Design/methodology/approachData for this study is collected from a total of 735 firms over a period of five years, from 2010 to 2014, resulting in a total of 2,904 firm-year observations. The effect of geographical diversification on the cash and working capital of the firms is analyzed by using the ordinary least squares (OLS) with standard errors adjusted for firm level clustering and the quantile regression (QR) analyses. Control variables which represent the characteristics of the firms are also considered.FindingsAnalysis using the OLS regression technique indicates that geographical diversification has a highly significant positive influence on corporate cash holdings, while the influence of working capital is negative and its significance is only at the 10 per cent level. However, when QR is used to analyze the relationships, it is found that geographical diversification is only significant in positively influencing cash holdings for firms with low cash holdings, but the relationship is insignificant at high levels of cash holdings. Additionally, working capital is significantly influenced by geographical diversification at high levels of working capital but not at low levels.Originality/valueTo the author’s knowledge, this is the first study to analyze the influence of geographical diversification on liquidity by considering both cash and working capital. The effect of diversification on liquidity is mostly studied in developed countries, whereas this study is focused on a developing country. Additionally, this study uses QR to analyze relationships at different levels rather than at aggregate level as done in OLS regression analysis.

Organization capital and corporate cash holdings

This paper investigates the relationship between organization capital and corporate cash holdings. We develop two competing hypotheses in relating organization capital with cash holding. Our analysis reveals that organization capital is related to high levels of cash holdings. Moreover, we find that the effect of organization capital on corporate cash holdings is stronger for firms experiencing high levels of financing constraint and cash flow risk. Our results remain robust to alternative measures of organization capital and corporate cash holdings, and are not driven by omitted variable bias or endogeneity issues. We also find that the positive relation between organization capital and cash holdings is not confounded by sample period or industry group. Overall, we provide robust evidence that supports the precautionary motive for corporate cash holding.

CEO overconfidence and corporate cash holdings

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

Corporate Governance and Cash Holdings in Hospitality Firms: Do Board Characteristics Matter?

This paper study the relationships between corporate governance mechanisms and cash holdings, and the joint effects on firm performance. We test if these governance attributes are related to cash holdings among firms in the hospitality industry. Our sample consists of public listed hospitality firms in Malaysian and Singapore from the year 2005 to 2013. Different from the past literature which mainly adopted the ordinary least squares regression (OLS) model, this study uses panel regression tests to test the link between the variables and the cash holdings level. We adopt the generalized method of moment (GMM) estimation to control the possible endogenous problem. The results indicate that board of director characteristics plays a pivotal role in cash holdings. We find that board independence, board duality, board busyness and ownership structure are significantly associated with the cash reserves. We find that although the relationship between good governance and corporate liquidity are not significant during crisis in general, the benefits are more pronounced during sudden crisis (Cobra type). The impact of such crisis is found to be significantly alleviated for firms with high cash holdings and good governance. The findings should provide valuable information in developing strategies on cash management. This study provides insight on the importance of the disciplinary and monitoring role of boards of directors.

Stock Liquidity and the Complementarity between External Financing and Cash Holdings

Do firms with liquid stocks hold more cash? If so, why? We show that liquidity has a positive effect on the level and value of cash holdings. Using a regression discontinuity design based on the Russell 1000/2000 index reconstitution, we also show that there is a causal link between liquidity and cash holdings. These findings are consistent with a view predicting that high liquidity generates the complementarity between external financing and cash holdings. Furthermore, we show that the positive effect is more pronounced for firms with more growth opportunities, suggesting that liquidity increases cash holdings by expanding investment opportunities.

The Financial Determinants of Corporate Cash Holdings: Does Shariah-Compliance Matter?

Purpose: The purpose of this study is to explore the difference between the determinants of cash holdings of shariah-compliant and non-shariah-compliant firms, for non-financial corporations in the Gulf Cooperation Council (GCC). Methodology: The data includes all non-financial firms listed in six GCC markets over the period 2005 to 2016. The Ideal Ratings database is used to identify shariah-compliant firms in the GCC. To examine the determinants of cash holdings, static model is used. To confirm the applicability of the method applied, the Breusch-Pagan Lagrange Multiplier (LM) and Hausman (1978) are employed to choose the most efficient and consistent static panel regression. Findings: The Results show that, for shariah-complaint firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, and net working capital. For non-shariah-compliant firms, the only relevant determinants of cash holdings are leverage and net working capital. The findings suggest that cash holding decisions of shariah-complaint firms can be best explained using the pecking order theory. This reveals that shariah-compliant firms use liquid assets as their first financing option since, due to the shariah regulations. Research limitations/implications: Future studies may investigate the optimal levels of cash holdings and compare the adjustment speeds toward target cash holdings of both the shariah-compliant firms and their conventional counterparts. Originality/value: This study is the first to investigate the difference between the determinants of cash holdings of shariah-compliant and non-shariah-compliant firms.

Hedge Fund Liquidity Management: Insights for Systemic Risk Oversight

Using Form PF filings over 2013–2017, we find that funds maintain higher levels of cash holdings and available borrowing (“liquidity buffers”) when they hold more illiquid assets, have shorter-term commitments from investors and creditors, and when market volatility is greater. We also find that funds with low abnormal buffers – that is, with liquidity buffers below the level predicted by fund attributes – outperform their benchmarks. Stocks with greater ownership by managers with abnormally low buffers subsequently outperform other stocks, especially around earnings announcements. Our results highlight potential trade-offs between systemic risk-oriented policies requiring larger liquidity buffers and the impairment of regular price discovery in financial markets.

Too much liquidity? Seemingly excess cash for innovative firms

AbstractWe show that more cash allows innovative firms facing financing constraints to undertake more research and development projects and that this phenomenon has been more pronounced since 1980. In contrast to the secular increase in the level of cash holdings, average excess cash has not increased appreciably. We analyze excess cash disposition and document a strong relation between excess cash and research and development spending. Finally, our results suggest that increased difficulty in valuing research and development might be a source of financing frictions. These findings imply that “seemingly excess cash” has played an increasingly important role in mitigating underinvestment in innovation.

Firm Value and Corporate Cash Holdings. Empirical Evidence from the Polish Listed Firms

In the context of imperfect markets, it is important to understand the relationship between nonearning assets and firm value, in order to evaluate the corporate financial policies and to attain the right equilibrium between liquidity and profitability. The aim of our paper is to assess the relationship between corporate cash holdings and firm value for a sample of 719 Polish listed firms over the period 2007-2016. The study reports an inverted U-shape relationship between cash holdings and firm value, irrespective of whether we use static regression methods or dynamic panel regression. Our results confirm the existence of an optimum level of cash holdings at 27.06% of total assets. Furthermore, the nonlinear relationship between firm value and corporate cash holdings is found for all Polish listed firms, financially and less financially constrained. We report two breakpoints of the cash-value relationship, in the context of financial constraints, and the results indicate that the optimum level of cash holdings is much higher for financially constrained firms than less financially constrained ones. Finally, we show that the financial crisis has no additional impact on the nonlinear relationship between cash holdings and firm value. We validate the financial constraints as having a more pronounced effect on the relationship between corporate cash holdings and firm value, compared to the financial crisis, as intervening effects, in the context of the Polish economy. This study holds important microeconomics policy implications – firm-level financial policies should evaluate the tradeoff between cash holdings and market value in order to maintain the firm financial performance.