Share Pledging and Firm Cash Holdings: Evidence from Chinese A-share Listed Firms

This paper examines the relation between share pledging and cash holdings of Chinese A-share listed-firms. We find that during the years 2005 through 2015, the level of share pledging is negatively associated with cash holdings. We establish causality through a variety of econometric techniques, including a difference-in-differences approach based on a regulatory change that permits security companies to lend money to borrowers pledging their shares as collaterals. In addition, we find that the main effect is more prominent for financial constrained firms, and share pledging is associated with lower cash/investment-cash flow sensitivities and more cash dividend payouts. Overall, our findings indicate that share pledging can alleviate financial constraints of listed firms and reduce their tendencies of holding cash for precautionary motives.

The Implications of Investment–Cash Flow Sensitivities for Franchising Firms: Theory and Evidence From the Restaurant Industry

Expansion through franchising could help restaurant firms solve financial constraints, but it could also make overinvestment easier for misaligned CEOs. Whereas the former topic has been extensively examined, the latter has received scant attention from researchers. The purpose of this study is to investigate whether franchising alleviates financial constraints or leads to overinvestment problems in restaurant firms. For this purpose, we analyzed and compared investment–cash flow sensitivities between constrained and unconstrained; franchising and nonfranchising; constrained, franchising and unconstrained, franchising; and constrained, nonfranchising and unconstrained, nonfranchising restaurant firms. The results show that unlike other industries, unconstrained restaurant firms depend more on cash flows for investment than constrained restaurant firms do. Although investment–cash flow sensitivity in nonfranchising restaurant firms was similar to that of firms in other industries, unconstrained restaurant firms that expand through franchising rely more on cash flows. These findings suggest that restaurant firms’ expansion through franchising is likely to increase overinvestment problems. Franchising could serve as a long-term method of financing for financially constrained firms as well as a short-term financing tool. However, unconstrained, franchising firms should distribute their excess cash flows to shareholders. Theoretical implications are discussed within the realms of the franchising, pecking order, and free cash flow theories.

Debt holdings and investment cash flow sensitivity of listed firms

Purpose The purpose of this paper is to examine the effect of debt holdings on the sensitivity of firms’ investment to availability of internal funds. Design/methodology/approach For a panel data set of 27 Ghanaian listed firms for the period 2007–2013, the paper applies the Euler equation approach to the empirical modeling of investment. Findings The study finds support for the assertion that listed firms face less severe corporate control problems and lower financing constraints, and thus, have lower investment cash flow sensitivities. The study also finds that a significant positive sensitivity of investment to internal funds is associated with firms that have high debt holdings. Practical implications An implication of this study is that firms with high debt holdings face greater challenges in accessing external finance. These firms are likely to experience under-investment which at a macro level would translate into lower investments and economic growth for the country. Originality/value Empirical literature document that in the presence of market imperfections, investments of financially constrained firms become sensitive to the availability of internal finance. There are also contradictory evidences regarding the pattern of the observed investment cash flow sensitivity. This study examines the effect of debt holdings on the sensitivity of firms’ investment to availability of cash flow. This is yet to be empirically tested despite some theoretical explanations.