Target Cash Research Articles

Modelling features and outcomes of Brazil's electricity tariff flag program

Brazil's Tariff Flag Program is presented with its main modelling features and outcomes explored. The program's virtue is coupling several independent procurement commitments in a single target cash flow linked to an information framework, which seeks to provide real-time awareness about the power system's production costs. Regulatory principles such as simplicity and stability challenge the modelling approach. The framework may be useful for non- or partially liberalised power markets, where uniform tariff rates are common. It also may help utilities to deal with wholesale prices' volatilities.

Corporate Governance and Cash Holdings among Non-Financial Companies Listed in the Nigerian Exchange Group

The exogenous shocks that necessitate firm deviation from a target cash holding vary across firms and institutional environments, hence the need for the study. This study examines the relationship between corporate governance (CG) and cash holdings among non-financial companies in the Nigerian Exchange Group between 2011 and 2020. The number of populations is 133 non-financial firms. As not all firms disclosed publicly comprehensive annual reports the number of final samples is 88 firms. Generalized Method of Moments (GMM) and the quantile techniques were adopted. With a speed of adjustment (SOA) of 0.75 and a time frame of one year, three months, and four days (1/0.749 = 1.34), the result reveals a partial dynamic adjustment to target cash holdings. The quantile estimation generally reveals low cash holdings and high SOA dynamics, and it is significant at 5% level. With exception of board gender diversity and institutional ownership, variables such as board independence, size, and chief executive officer equity ownership exhibit a significant inverse impact on cash holdings at a 5% level. Relying on the dynamic trade-off and agency theories, the results conform to a prior expectation. This study recommends that a manager should formulate strategic financial policy based on a firm’s specific SOA.

Intellectual capital efficiency, institutional ownership and cash holdings: a cross-country study

PurposeThis study aims to investigate the roles of intellectual capital efficiency and institutional ownership on cash holdings and their speed of adjustment.Design/methodology/approachUsing a sample of 432 firm-year observations of tourism-listed companies, three measures of cash holdings are used as dependent variables and intellectual capital efficiency and institutional ownership as independent variables. The financial data is collected from the S&P Capital IQ database for the period 2015–2020. Two system-generalized methods of moment estimation are used for the robustness checks of the results.FindingsThe study provides evidence that an increase in intellectual capital efficiency in tourism firms results in lower cash holdings. The research findings also report that characteristics such as firm size, age and market-to-book value ratio are associated with cash holdings. Furthermore, institutional ownership in these firms did not affect the cash holdings. The results also confirm the existence of a target cash holding level to which the tourism firms attempt to converge. These results are robust to the alternative proxy of cash holding and endogeneity tests.Research limitations/implicationsThe study uses intellectual capital efficiency measured by the model proposed by Pulic. Alternative measures of intellectual capital can be included in future studies. Future research can also investigate the impact on cash holdings before and during the pandemic for tourism companies. The study is limited to the impact of institutional ownership; thus, research can be extended to consider other types of ownership.Practical implicationsThe findings of this study indicate that tourism companies should take into account the impact of intellectual capital efficiency on their cash holding decisions. The industry uses a specific financial management strategy in light of better efficiency and possibly values the opportunity cost of holding more cash. Additionally, regulators should re-examine the role of institutional ownership in tourism firms, as it was found to have no impact on cash holdings. The regulators may need to consider other factors, such as firm size and age, when developing policies and regulations to ensure that tourism firms have adequate cash holdings.Originality/valueThis study adds to the body of knowledge on the factors that influence cash management and ideal cash levels for the tourism industry. The examination of the effect of intellectual capital on cash holdings is a novel contribution, filling a gap in the existing literature. The findings on the speed of adjustment towards optimal cash holdings also provide support for the trade-off theory.

기업의 조세회피 수준 조정속도에 관한 연구

[Purpose]This study investigates the adjustment of tax avoidance toward the target level among companies listed in Korean capital market. While many previous studies examine various Korean studies on the change in tax avoidance, there is a dearth of evidence on whether Korean firms adjust their tax avoidance accordingly with the target level.
 [Methodology]This study employs the partial adjustment model, which is hugely used in capital structure research, to gauge the speed that firms close the gap between the actual and target cash effective tax rates.
 [Findings]The empirical result presents that Korean firms close the gap between the actual and target levels of cash effective tax rates by 57.8% to 80.1% over three－year period. It also shows that the adjustment speed is faster for firms with actual cash effective tax rate higher than the target level compared with firms having actual cash effective tax rate lower than the target level.
 [Implications]This study indicates that Korean firms have the target level of tax avoidance and actively adjust toward the target level. It also implies that engaging more tax avoidance toward the target level is easier than unwinding previous tax strategies.

Corporate Cash Holdings and Speed of Adjustment: Does Shariah Compliance Matter?

This study examines the impact of the shariah complaint status on corporate cash holdings, the speed of adjustment towards its target cash holdings, and the effect of firm-specific factors on corporate cash holdings. The data of non-financial firms listed on the Pakistan Stock Exchange from 2015 to 2020 has been collected. The panel data methodology is used. The findings imply that shariah-compliant firms hold more cash than non-shariah-compliant firms. The adjustment speed toward its target cash holdings is faster in shariah compliant firms. The financial leverage and cash flows show a negatively significant effect on corporate cash holdings. The working capital, dividend, and profitability exert a significant positive change on cash holdings. Explaining the cash-holding determinants reveals that trade-off and pecking order theories play a central role. This study is beneficial for policymakers, managers, and investors.

Managerial overconfidence and corporate cash holdings: Evidence from primary and secondary data

The corporate finance literature argues that overconfident managers tend to hold less cash, and this leads to a significant deviation from optimal cash levels. We analyse the impact of executive overconfidence on the corporate cash holdings of listed Vietnamese firms. To quantify managerial overconfidence, a novel core measure used in our analyses is voice pitch, which is obtained from interviews with top-line managers. Other measures of managerial overconfidence are also used to support the results and confirm the validity of the voice pitch measure. Our empirical evidence, with economically significant results, reveals that higher levels of overconfidence amongst managers are associated with lower cash holdings. Surprisingly, the findings show that overconfident managers tend to be associated with a low level of deviation from optimal cash holding levels. In addition, our findings also provide evidence that managerial overconfidence can increase cash levels and deviations from target cash holdings for overinvesting firms.

Economic policy uncertainty, geopolitical risk and cash holdings: evidence from Saudi Arabia

PurposeThis study aims to investigate the influence of economic policy uncertainty (EPU) and geopolitical risk (GPR) on corporate cash holding level and speed of adjustment (SOA) in one of the most important emerging markets in the Middle East and North Africa, Saudi Arabia. It also investigates whether Shariah-compliance as well as financial constraints affect the relationship between both EPU and GPR and corporate cash holdings.Design/methodology/approachThe study employs GMM regression considering a sample of 140 nonfinancial firms drawn from the Saudi stock market over the period 2002 to 2019.FindingsThe authors find evidence in support of the precautionary motive hypothesis. Facing costly external financing induced by economic policy-related uncertainty and geopolitical tension, Saudi firms tend to accumulate cash as a buffer against negative shocks to their cash flows. The results also show that the positive impact of EPU and GPR on the level of cash holding is less pronounced in Shariah-compliant firms, whereas it is more pronounced in more financially constrained firms. Evidence also reveals that the estimated adjustment coefficients show that Saudi firms adjust more quickly toward their target cash ratio in periods of high economic instability and geopolitical risks.Practical implicationsThis study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering factors measured at the country level. More specifically, managers should pay more attention to periods of heightened uncertainties and geopolitical tensions in which the availability of funds is reduced. For policymakers and regulators, this study may be useful in assessing the effect of economic instability on firm’s cash holding decision. Therefore, in an effort to increase the supply of external financing available to firms, policymakers may devise investment friendly environment by controlling country-specific factors.Originality/valueThis paper shows how EPU and GPR as institutional environment factors affect cash holding decision in an oil-rich country.

Policy uncertainty and cash dynamics

AbstractWhy and when do firms deviate from target cash? And why do we observe imperfect adjustment of cash? I postulate and provide evidence that policy uncertainty induces financing frictions and adjustment costs, which decelerate the speed of adjustment (SOA) of cash toward target. I find that the effects of policy uncertainty on SOA are higher for firms that operate below target cash than for firms that operate above target cash. The results suggest that under policy uncertainty shocks, firms deviate from target cash as the expected benefit of deviation is greater than the expected value of approaching the target.

Targeting Cash Transfers on the “Poorest of the Poor” in the Slums: How Well Did the Kenya’s Older Persons Cash Transfer Programme Perform?

ABSTRACT In resource poor environments, identifying those most in need of limited available resources is challenging. Kenya’s older persons cash transfer programme (OPCT) targeted at the most poor used a 2-stage targeting process to identify beneficiaries, combining community-based selection with a proxy means-test. This paper investigates whether the process “correctly” identified targeted vulnerable older people in Nairobi’s informal settlements and whether receipt of the OPCT resulted in an improvement in perceived financial wellbeing. Regression results show that individuals with greater need were covered under the OPCT. Using propensity score matching, the paper evidences that the OPCT improved subjective financial wellbeing among beneficiaries.

The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations

PurposeThe purpose of this study is to investigate 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).Design/methodology/approachThe data include all non-financial firms listed in six GCC markets over a period 2005–2019. The IdealRatings database is used to identify Shariah-compliant firms in the GCC. To examine the determinants of cash holdings, a static model is used. To confirm the applicability of the method applied, the Breusch–Pagan Lagrange Multiplier (LM) and Hausman (1978) are used to choose the most efficient and consistent static panel regression.FindingsThe results show that, for Shariah-compliant firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, net working capital and operating cash flow. For non-Shariah-compliant firms, the only relevant determinants of cash holdings are leverage, net working capital and operating cash flow. The findings suggest that the cash holding decisions of Shariah-compliant firms can be best explained using the pecking order theory. This reveals that Shariah-compliant firms use liquid assets as their first financing option, due to the Shariah regulations.Research limitations/implicationsFuture 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/valueThis study is the first to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms.

The impact of the global financial crisis on corporate cash holdings: Evidence from Eastern European countries

This study investigates the impact of the global financial crisis on the determinants of corporate cash holdings and adjustments towards target cash levels using a sample of Eastern European firms. Employing panel fixed effects and GMM estimations, the results reveal that firm-level determinants of cash holdings significantly differ for pre- and post-crisis periods. Moreover, we find significantly lower adjustment speed to attain the optimal cash level in the post-crisis period. Our results are robust to correction for endogeneity. These results hold important implications for Eastern European firms, which are significantly afflicted by the global financial crisis in terms of liquidity shortage and limited financial flexibility.

The effects of cash-holding motivation on cash management dynamics

The two main motivations for having precautionary cash holdings are to cover potential operating losses and to fund investments. A firm’s cash-holding levels may appear to be similar under these two motivations; however, a firm’s cash-management dynamics can vary significantly depending on which of the two motivations is dominant. In this study, we investigate cash-adjustment speed when the actual cash levels deviate from the target cash levels. We confirm that, in general, cash-adjustment speed is faster when actual cash levels are above the target than when they are below the target; however, we also find that this speed asymmetry is more significant for firms with high operating-loss-driven (OLD) holdings than for firms with investment-driven (ID) holdings. In addition, we find that firms with high ID holdings adjust cash faster than firms with low ID holdings, regardless of cash-adjustment direction. These differences in speed imply that firms’ use of external capital can play a major role in their cash adjustment. High OLD firms are less likely than low OLD firms to use external capital to adjust cash levels up. This pattern stands in stark contrast to the pattern characterizing firms with different ID holdings, as high ID firms are more likely than low ID firms to use external capital, especially equity, to adjust cash levels up. We propose, therefore, that cash-holding motivation affects cash-management dynamics.

Do macroeconomic conditions affect corporate cash holdings and cash adjustment dynamics? Evidence from GCC countries

PurposeThis study aims to investigate the influence of macroeconomic conditions on corporate cash holdings in terms of their influence on the level of cash and the speed of adjustment of cash to target levels in the Gulf Cooperation Council countries (GCC).Design/methodology/approachThe study employs both static and dynamic regression analyses considering a sample of 2,878 firm-year observations drawn from stock markets in GCC countries over the 2010–2018 period.FindingsConsistent with the precautionary motive, the results show that GCC firms tend to accumulate cash reserves in weak economic periods. Evidence also reveals that the estimated adjustment coefficients from dynamic panel models show that GCC firms adjust more slowly toward their target cash ratio in periods of unfavorable economic conditions.Practical implicationsThis study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering financial constraints imposed by macroeconomic conditions. In particular, managers should pay more attention to periods of credit crunch and weak economic conditions in which firms may be exposed to greater bankruptcy risks. For policymakers and regulators, this study may be useful in assessing the effect of macroeconomic factors on firm's cash holding decision. Therefore, in an effort to increase the supply of external financing available to firms, policymakers may devise investment friendly environment by controlling macroeconomic factors.Originality/valueThis paper offers some insights on the macro determinants of cash holdings by investigating emerging economies. It explores the role of macroeconomic conditions on corporate cash holdings in terms of their influence on the costs of external funds and financial constraints.

Shariah Compliance and Corporate Cash Holdings

This study investigates the influence of shariah compliance status on firms’ cash holding levels and speed of adjustment in non-financial firms listed in six Gulf Cooperation Council (GCC countries) from 2005 to 2016. It shows that shariah compliance status has a significant effect on firms’ cash holding decisions. Shariah-compliant firms have significantly higher cash holding levels than non-shariah-compliant firms. Further, shariah-compliant firms adjust more quickly to their target cash holdings than do their conventional counterparts. In our view, shariah-compliant firms are subject to multiple restrictions that limit their external financing channels; therefore, holding larger cash reserves is important as such firms are financially constrained and gain from the transaction cost motive of holding cash. The findings of the study have important implications for regulators, investors and managers. To the best of our knowledge, this study is the first to compare the effect of shariah compliance on firms’ cash holdings and speed of adjustment towards the trade-off theory’s optimal cash holding target.

Shariah compliance and corporate cash holdings

This study investigates the influence of Shariah compliance status on cash holding levels and the speed of adjustment of non-financial listed firms in six Gulf Cooperation countries from 2005 to 2016. The results show that Shariah compliance status has a significant effect on firms’ cash holding decisions. Shariah-compliant firms have significantly higher cash holding levels than non-Shariah-compliant firms. Further, Shariah-compliant firms adjust more quickly towards their target cash holdings than their conventional counterparts. In our view, Shariah-compliant firms are subject to multiple restrictions that limit their external financing channels. Therefore, holding larger cash reserves is important as it helps gain from the transaction cost motive of holding cash. The findings of this study have important implications for regulators, investors and managers. To the best of our knowledge, this study is the first to compare the effect of Shariah compliance on firms’ cash holdings and the speed of adjustment towards the trade-off theory’s optimal cash holding target.

Decision Support System for Direct Target Cash Recipients Using the AHP and K-Means Method

<strong><em>In the Covid-19 pandemic situation, the government organized a Direct Cash Assistance as known as BLT for the people who were affected by Covid-19. The nominal amount of BLT received by the public is Rp. 600,000 per month. But in fact, the amount of BLT quota is not proportional to the list of BLT recipients submitted by regional officials, in this case, RT (Rukun Tetangga). So, to find out who is really suitable or appropriate, a decision-making system is needed so that the deposit of the BLT from the government can be right on target in accordance with the criteria set by the government. Stages of the study began with clustering of weights. After that, it is entered into the system to do a decision support process with AHP (Analytical Hierarchy Process). The target of this research is the application that can be used to assist the government in distributing BLT to be right on target. Based on the functional testing of the system, the functions in the system have been succeeded according to plan. This system has successfully applied the K-Means and AHP methods for decision making, to receive direct cash assistance from the government. This system has a 100% accuracy rate. Where the most important criteria in this system are income with a weight of 0.394142515, ownership of a house with a weight of 0.231035138, number of dependents with a weight of 0.190359096, age with a weight of 0.081077616, employment with a weight of 0.058111736, and weight with a weight of 0, 045273898</em></strong>

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.

Does volatility of trade receivables affect corporate cash holdings Empirical evidence from Turkey

Purpose - This study aims to analyze the direct impact of trade receivables volatility on corporate cash holdings. Unlike previous studies, the present paper focuses on variability of a firm’s investment in trade credit which proxies instability of a firm’s trade receivables policy. Methodology - The sample is composed of 330 Turkish industrials listed on Borsa Istanbul from 2000 to 2017. The model is estimated via system GMM (Generalized Method of Moments) to account for the partial adjustment process towards the target cash level and also to address the potential endogeneity issue related with volatility of trade receivables. Findings- Estimations establish a significant negative effect of trade receivables volatility on cash holdings. The results are robust to alternative definitions of cash holdings and trade receivables volatility. Conclusion - The evidence presented in this study suggests that instability of trade receivables policy weakens liquidity position of firms.

Linking Metrics to Objectives: Retirement Saving, Spending, and Active Management

Although financial advisors and institutions are increasingly urged to adopt objectives or goals-based investment strategies, there is a need to more clearly define what is meant by investment objectives and their effects on outcomes. In a controlled modeling experiment, the author formalizes two investor personas (Accumulator and Decumulator) and two investment strategies (Target Cash Flows and Target Wealth) to provide a deeper understanding of the effects on investor “success” or “failure.” In addition, applying characteristics that are potentially available in actively managed funds, such as differences in investments in terms of beta, alpha, and sequence of returns, enables the demonstration of several surprising effects, including changes in the distribution of investment returns and, of importance, the trajectory of investor outcomes in an objectives-based framework. TOPICS:Retirement, style investing, wealth management Key Findings • The sequence of investor returns is a surprisingly large determinant of outcomes, matching the effects of asset allocation. • There is a premium to flexibility in goal-oriented cash flows; an adaptive approach may increase the chances of meeting a goal. • Too little attention has been given to the importance of actively managed investment strategies in reducing the risk of meeting an objective.

Determinants of Corporate Cash Holdings: Evidence from India

We examine the evolution and determinants of corporate cash holdings of Indian non-financial firms for the period 2001-2016. In contrast to a prominent increase in corporate liquidity levels globally after the global financial crisis, we document a gradual decline in corporate cash holdings of Indian non-financial firms. We provide empirical evidence to show that profitability, operating cash flow and cash flow volatility are positively associated with cash holdings. Further, our results suggest that size,leverage, liquidity, capital expenditure and promoter ownership share a negative relationship with cash holdings. In addition, we do not find concrete empirical evidence regarding relationship of corporate cash holdings with growth potential and dividend payments. Our results are broadly consistent across five panel data estimation techniques namely pooled ordinary least squares regression, Fama-MacBeth procedure, fixed effects estimator, between effects estimator and system generalised method of moments estimator. Moreover, we use an alternative proxy of corporate cash holdings to reinforce the robustness of our findings. Finally, our results show that a typical Indian non-financial firm achieves target cash levels in a time span of 2.18 years on an average, thereby highlighting a slower speed of adjustment of corporate cash holdings as compared to firms in developed economies.