Cost of Carry, Financial Constraints, and the Dynamics of Corporate Cash Holdings

2019 ◽  
Author(s):  
Ruhollah Eskandari ◽  
Morteza Zamanian
Keyword(s):  
Financial Constraints ◽  
Cash Holdings ◽  
Cost Of Carry ◽  
Corporate Cash Holdings

Accruals quality, financial constraints, and corporate cash holdings

2019 ◽  
Vol 45 (8) ◽  
pp. 1129-1145 ◽  
Author(s):  
Hatem Mansali ◽  
Imen Derouiche ◽  
Karima Jemai
Keyword(s):  
Information Asymmetry ◽  
Financial Constraints ◽  
Earnings Quality ◽  
Cash Holdings ◽  
Reporting Quality ◽  
Discretionary Accruals ◽  
Content Type ◽  
Accruals Quality ◽  
Corporate Cash Holdings ◽  
High Information

Purpose The purpose of this paper is to examine how information asymmetry driven by earnings quality affects corporate cash holdings. It also investigates the role that financial constraints play in this effect. Design/methodology/approach The paper examines a large sample of 6,501 observations of 741 firms listed on Euronext Paris over the period 2000–2015. Earnings quality is computed using the Jones model performance-matched discretionary accruals developed by Kothari et al. (2005): the larger the absolute value of discretionary accruals, the lower the accruals quality. Findings The study finds that firms with poor accruals quality hold more cash and that cash holdings in firms of low reporting quality are higher under financial constraints. These results indicate that firms tend to increase their cash reserves in the presence of high information asymmetry which is notably driven by low accounting quality. The findings also suggest that information asymmetry associated with low reporting quality is greater when firms also have strong financial constraints. The study’s conclusions are consistent with the precautionary motive for cash holdings. Practical implications The results would enhance practitioners’ awareness of the importance of accounting choices in the management of cash policies. It would also give researchers an incentive to further explore how these policies are influenced by the precautionary behavior of managers. Originality/value This paper is the first work to investigate the effect of accruals quality on corporate cash holdings in the French equity market, which typically has a poor information environment resulting in high information asymmetry. Moreover, the role of financial constraints in this effect has not yet been explored.

scholarly journals Do firms park capital? Evidence from the U.S. manufacturing sector

2018 ◽  
Vol 15 (2) ◽  
pp. 194-202
Author(s):  
Paul Moon Sub Choi ◽  
Francis Joonsung Won
Keyword(s):  
Capital Expenditure ◽  
Manufacturing Sector ◽  
Moving Average ◽  
Cash Holdings ◽  
Positive Association ◽  
Demand For Money ◽  
Cost Of Carry ◽  
The Cost ◽  
Corporate Cash Holdings ◽  
The U.S

This study uses the “cost of carry” (CoC) measure to identify the motive for corporate cash holdings. Based on the historical, moving-average holdings of currency and liquid assets, the measure represents the net opportunity cost of corporate demand for money. This study finds that large manufacturing firms in the U.S. park their capital in short-term assets appealing to the agency motive for cash holdings. Because dividend-paying firms can choose to distribute their capital to equity shareholders when their investment opportunities are unfavorable, these firms might show a non-positive association between capital expenditure and the CoC measure, championing the transactions motive. Still, dividend-paying large firms exhibit an overall positive correlation, suggesting that they park their capital on the agency motive. A detailed literature review and discussions are followed.

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

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moncef Guizani ◽  
Ahdi Noomen Ajmi
Keyword(s):  
Financial Constraints ◽  
Cash Holdings ◽  
Economic Conditions ◽  
External Financing ◽  
Macroeconomic Factors ◽  
Content Type ◽  
Macroeconomic Conditions ◽  
Gcc Countries ◽  
Cash Reserves ◽  
Corporate Cash Holdings

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.

Can Changes in the Cost of Carry Explain the Dynamics of Corporate “Cash” Holdings?

2016 ◽  
Vol 29 (8) ◽  
pp. 2194-2240 ◽  
Author(s):  
José A. Azar ◽  
Jean-François Kagy ◽  
Martin C. Schmalz
Keyword(s):  
Cash Holdings ◽  
Cost Of Carry ◽  
The Cost ◽  
Corporate Cash Holdings

Financial Constraints, R&D Investment, and the Value of Cash Holdings

2015 ◽  
Vol 05 (04) ◽  
pp. 1550011 ◽  
Author(s):  
Laurence Booth ◽  
Christos Ntantamis ◽  
Jun Zhou
Keyword(s):  
Financial Constraints ◽  
Cash Holdings ◽  
Alternative Methods ◽  
Development Activity ◽  
Marginal Value ◽  
Value Of Cash ◽  
The Status ◽  
Alternative Measures ◽  
Corporate Cash Holdings ◽  
D Investment

Existing studies document that cash holdings are more valuable for financially constrained firms than for financially unconstrained firms. We investigate whether the relation between financial constraints and the value of corporate cash holdings varies across firms with different engagement in research and development activity. Among firms with R&D investment, the marginal value of cash is significantly higher for financially constrained firms than unconstrained ones, whereas this difference is weak among firms without R&D investment. Our findings are robust to alternative measures of financial constraints and alternative methods to define R&D intensity. Our study extends the cash literature by showing that the value of cash holdings is affected by the status of financial constraints and the nature of investment jointly.

FINANCIAL CONSTRAINTS AND CORPORATE CASH HOLDINGS: AN EMPIRICAL ANALYSIS USING FIRM LEVEL DATA

2017 ◽  
Vol 12 (02) ◽  
pp. 1750009 ◽  
Author(s):  
ABDUL RASHID ◽  
MARYAM ASHFAQ
Keyword(s):  
Cash Flow ◽  
Firm Size ◽  
Financial Constraints ◽  
Cash Holdings ◽  
Firm Level ◽  
Book Value ◽  
Level Data ◽  
Alternative Measures ◽  
Cash Flow Volatility ◽  
Corporate Cash Holdings

This paper empirically investigates whether the sensitivity of cash to its firm-specific determinants differs across financially constrained and unconstrained firms. We sort out firm-year observations as financially constrained and unconstrained based on the median value of three alternative measures: the firm size, dividend payout ratio, and Whited and Wu (WW) index. In order to mitigate the problem of endogeneity and to take into account the dynamic nature of the panel dataset, we apply the robust two-step system-GMM estimator on unbalanced annual panel dataset covering the period 2001–2013. The results suggest that financially constrained firms (FCFs) decrease their cash holdings with size, leverage, and the payout ratio, while they increase their cash amounts with both the market-to-book value and the cash flow volatility. On the other hand, for financially unconstrained firms (FUCFs), we show that there is a positive relationship between cash holdings and firm size, the payout ratio, and the market-to-book value, while both the cash flow volatility and leverage are negatively related to cash holdings. These asymmetries in the sensitivity of cash to its determinants are robust across all the three measures of financial constraints used in the study.

scholarly journals Do Firm-Bank Relationships Affect Corporate Cash Holdings?

2017 ◽  
pp. 5-20
Author(s):  
Andriy Tsapin
Keyword(s):  
Empirical Evidence ◽  
Financial Constraints ◽  
Cash Holdings ◽  
Agency Conflicts ◽  
Main Bank ◽  
Cash Reserves ◽  
The Impact ◽  
The Relationship ◽  
Corporate Cash Holdings

This paper explores the impact of firm-bank relationships on corporate cash holdings using a sample of more than 4,000 Ukrainian companies over the period from 2008 to 2015. The empirical evidence suggests that the duration of the relationship and the presence of multiple bank relationships affect corporate cash holdings. Specifically, an increase in the length of a bank’s relationship with a main bank initially reduces corporate cash holdings but the effect turns positive due to the hold-up problem when the relationship matures. We also observe that companies with a greater number of bank relationships tend to hold more cash reserves, whereas more competition among banks allows firms to hold less cash. Additionally, we document that firm-bank relationships are important in helping firms resolve agency conflicts and facilitate reducing a firm’s financial constraints.

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