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Journal ArticleDOI

Determinants of Corporate Cash Holdings

01 Feb 2017-Global Business Review (SAGE PublicationsSage India: New Delhi, India)-Vol. 18, Iss: 2, pp 416-427
TL;DR: In this paper, the authors examined the financial determinants of corporate cash holdings using a panel data regression method and used the fixed-effects method based on Hausman test results.
Abstract: This article aims at examining the financial determinants of corporate cash holdings. The study employs panel data regression method. It uses the fixed-effects method based on Hausman test results ...
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Journal ArticleDOI
TL;DR: In this paper , the impact of low-quality financial statements on the level of cash holdings of companies listed on the Amman Stock Exchange (ASE) has been examined using a generalized method of moment estimation.
Abstract: Purpose This study aims to examine the impact of low-quality financial statements; that is, disclosure violations reported by the Securities Exchange Commission related to the level of cash holdings (CH) of firms listed on the Amman Stock Exchange (ASE). Design/methodology/approach Using panel data from 107 ASE-listed companies from 2009 to 2018, the study uses generalized method of moment estimation to examine the research hypothesis. This study hypothesize that disclosure violations can affect the level of CH and control for several variables that affect this level. Findings The results show that disclosure violations significantly affect the level of CH and that cash flow, capital expenditure and debt issues have a significantly positive impact on corporate CH. On the other hand, the market to book ratio and sales growth were found to be insignificant. Research limitations/implications The limitations of the research include the fact that information on research and development and equity issues were not available, so were not included in the examination. Practical implications It is recommended that managers enhance the quality of disclosures since this allows them to hold lower levels of cash and exploit more investment opportunities. Policymakers are recommended to supervise firm disclosures closely and create ratings for disclosure quality. Originality/value To the best of the author’s knowledge, this is the first empirical research on the association between proven low-quality disclosures and the level of corporate CH among Jordanian listed companies.

2 citations

Journal ArticleDOI
30 Sep 2020
TL;DR: In this paper, the authors determine the effect of parameters used for cash holding in hospitality sector (HS) of target countries i-e France, Spain and United State of America for the period of 14 years (2005-2018).
Abstract: This study determines the effect of parameters used for cash holding in hospitality sector (HS) of target countries i-e France, Spain and United State of America for the period of 14 years (2005-2018). The parameters consist of firm size, leverage, capital expenditure, growth opportunity, liquidity, cash flow, cash flow volatility, asset intangibility, dividend payments and stock exchange. Dynamic panel data is employed for empirical estimation i-e Generalized Method of Moments (GMM). System GMM model estimation reveals that leverage, cash flow volatility and asset intangibility influence cash holdings positively while size, capital expenditure, growth opportunities and cash flow affect cash holdings negatively.

1 citations


Cites background or result from "Determinants of Corporate Cash Hold..."

  • ...Those profitable firms having easy and cheap access to debt markets need to hold less cash (Maheshwari and Rao, 2017)....

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  • ...Companies keep more cash in pursuit of stable dividend policy (Maheshwari and Rao, 2017)....

    [...]

  • ...Similarly, the study (model 2) portrays a positive nexus between dividend payments and holding of cash, which augments the argument that corporations amass more cash in pursuit of stable dividend policy (Maheshwari and Rao, 2017; Ozkan and Ozkan, 2004)....

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Journal ArticleDOI
TL;DR: In this article , the authors investigated the impact of financial leverage on corporate cash holdings in the Middle East and North African (MENA) emerging markets and found that leverage can be regarded as a substitute for holding a larger amount of cash and marketable securities.
Abstract: PurposeThis paper investigates the impact of financial leverage on corporate cash holdings in the Middle East and North African (MENA) emerging markets.Design/methodology/approachThe author applies the dynamic modeling approach to data from nonfinancial firms listed in 10 MENA countries between 2010 and 2019. The empirical model avoids the shortcomings of the prior literature by including indicators of the dynamics of the financial leverage to account for its persistence in the corporate cash holdings reserves.FindingsThis research reports a significant negative relationship between corporate cash holdings and financial leverage. The results support the pecking order model, suggesting that leverage can be regarded as a substitute for holding a larger amount of cash and marketable securities. The author argues that the negative relationship between financial leverage and corporate cash holdings reinforces the precautionary motive to have internal cash reserves rather than external debt to support capital and investment activities by firms in the MENA emerging markets.Practical implicationsThe results of this research provide important insights into cash and capital structure management for nonfinancial listed firms in the MENA emerging markets. Specifically, the paper will help managers to understand the dynamic financial leverage determinants of holding cash in corporations in the MENA emerging markets and encourage policymakers to financially determine the corporate capital structure and cash holdings based on cost and benefits. Managing the firm's capital structure and cash holdings based on trade-offs between costs and benefits would enhance operating cash flow which may play an important role in creating value for shareholders.Originality/valuePrior studies have commonly been concerned with the determinants of corporate cash holdings, but few have investigated the dynamic financial leverage determinants of corporate cash holdings. This paper draws attention to this issue within the context of MENA emerging markets. To the authors' best knowledge, this is the first study that explores the relationship between cash holdings and financial leverage in MENA emerging markets.

1 citations

Journal ArticleDOI
TL;DR: In this paper , the authors show that the board of commissioners' activities could not moderate the influence of cash flow, cash conversion cycle, capital expenditure, and net working capital on cash holding.
Abstract: Manufacturing companies need effective cash management to meet their capital expenditures and cash holding. Effective cash management needs to be supported by good governance so that it can determine adequate cash holding. Independent variables in this study were measured by cash flow, cash conversion cycle, capital expenditure, net working capital, and board of commissioners' activities. Governance measured by the board of commissioners' activities is also a moderation variable. The data in this study were processed and analyzed using Eviews 10 for the period 2017 to 2020. The panel's data regression results show that the cash conversion cycle and net working capital have a negative influence on cash holding. Cash flow, capital expenditure, and board of commissioners' activities have no effect. The moderation regression test results show that the board of commissioners' activities could not moderate the influence of cash flow, cash conversion cycle, capital expenditure, and net working capital on cash holding.

1 citations

Journal ArticleDOI
TL;DR: In this paper , the authors explored the impact of cash holdings on stock returns in small and medium enterprises and found that firms with higher levels of cash holding have higher investment alternatives and then lower stock returns.
Abstract: This paper explores the impact of cash holdings on stock returns in small and medium enterprises. The sample includes 24 SMEs listed on the Egyptian Nile Exchange, excluding service firms, with a total of 96 observations from 2016 to 2019. Data was collected from financial statements and reports obtained through an information dissemination company in Egypt. This study uses a panel data analysis with comparing all results via ordinary least squares and the generalized method of moments. The findings show a statistically significant negative effect of cash holding on stock returns in small and medium enterprises on the Egyptian Nile Exchange. Further, the evidence shows that firms with higher levels of cash holding have higher investment alternatives and then lower stock returns. This result supports the agency theory that an increase in cash holding leads to managers exploiting cash resources to achieve personal benefits, thus increasing agency costs, lowering investment efficiency, and therefore lowering stock returns. The results support the trade-off between risk and return by using cash holding to finance operational activities and investing in higher investment alternatives and then lower stock returns.

1 citations

References
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Journal ArticleDOI
TL;DR: In this article, the null hypothesis of no misspecification was used to show that an asymptotically efficient estimator must have zero covariance with its difference from a consistent but asymptonically inefficient estimator, and specification tests for a number of model specifications in econometrics.
Abstract: Using the result that under the null hypothesis of no misspecification an asymptotically efficient estimator must have zero asymptotic covariance with its difference from a consistent but asymptotically inefficient estimator, specification tests are devised for a number of model specifications in econometrics. Local power is calculated for small departures from the null hypothesis. An instrumental variable test as well as tests for a time series cross section model and the simultaneous equation model are presented. An empirical model provides evidence that unobserved individual factors are present which are not orthogonal to the included right-hand-side variable in a common econometric specification of an individual wage equation.

16,198 citations

Posted Content
TL;DR: In this paper, the benefits of debt in reducing agency costs of free cash flows, how debt can substitute for dividends, why diversification programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidationmotivated takeovers, and why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil.
Abstract: The interests and incentives of managers and shareholders conflict over such issues as the optimal size of the firm and the payment of cash to shareholders. These conflicts are especially severe in firms with large free cash flows—more cash than profitable investment opportunities. The theory developed here explains 1) the benefits of debt in reducing agency costs of free cash flows, 2) how debt can substitute for dividends, 3) why “diversification” programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidationmotivated takeovers, 4) why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil, and 5) why bidders and some targets tend to perform abnormally well prior to takeover.

14,368 citations

Journal ArticleDOI
TL;DR: In this paper, a firm that must issue common stock to raise cash to undertake a valuable investment opportunity is considered, and an equilibrium model of the issue-invest decision is developed under these assumptions.

13,939 citations

Journal ArticleDOI
TL;DR: In this article, the authors predict that corporate borrowing is inversely related to the proportion of market value accounted for by real options and rationalize other aspects of corporate borrowing behavior, such as the practice of matching maturities of assets and debt liabilities.

12,521 citations

Book
28 Apr 2021
TL;DR: In this article, the authors proposed a two-way error component regression model for estimating the likelihood of a particular item in a set of data points in a single-dimensional graph.
Abstract: Preface.1. Introduction.1.1 Panel Data: Some Examples.1.2 Why Should We Use Panel Data? Their Benefits and Limitations.Note.2. The One-way Error Component Regression Model.2.1 Introduction.2.2 The Fixed Effects Model.2.3 The Random Effects Model.2.4 Maximum Likelihood Estimation.2.5 Prediction.2.6 Examples.2.7 Selected Applications.2.8 Computational Note.Notes.Problems.3. The Two-way Error Component Regression Model.3.1 Introduction.3.2 The Fixed Effects Model.3.3 The Random Effects Model.3.4 Maximum Likelihood Estimation.3.5 Prediction.3.6 Examples.3.7 Selected Applications.Notes.Problems.4. Test of Hypotheses with Panel Data.4.1 Tests for Poolability of the Data.4.2 Tests for Individual and Time Effects.4.3 Hausman's Specification Test.4.4 Further Reading.Notes.Problems.5. Heteroskedasticity and Serial Correlation in the Error Component Model.5.1 Heteroskedasticity.5.2 Serial Correlation.Notes.Problems.6. Seemingly Unrelated Regressions with Error Components.6.1 The One-way Model.6.2 The Two-way Model.6.3 Applications and Extensions.Problems.7. Simultaneous Equations with Error Components.7.1 Single Equation Estimation.7.2 Empirical Example: Crime in North Carolina.7.3 System Estimation.7.4 The Hausman and Taylor Estimator.7.5 Empirical Example: Earnings Equation Using PSID Data.7.6 Extensions.Notes.Problems.8. Dynamic Panel Data Models.8.1 Introduction.8.2 The Arellano and Bond Estimator.8.3 The Arellano and Bover Estimator.8.4 The Ahn and Schmidt Moment Conditions.8.5 The Blundell and Bond System GMM Estimator.8.6 The Keane and Runkle Estimator.8.7 Further Developments.8.8 Empirical Example: Dynamic Demand for Cigarettes.8.9 Further Reading.Notes.Problems.9. Unbalanced Panel Data Models.9.1 Introduction.9.2 The Unbalanced One-way Error Component Model.9.3 Empirical Example: Hedonic Housing.9.4 The Unbalanced Two-way Error Component Model.9.5 Testing for Individual and Time Effects Using Unbalanced Panel Data.9.6 The Unbalanced Nested Error Component Model.Notes.Problems.10. Special Topics.10.1 Measurement Error and Panel Data.10.2 Rotating Panels.10.3 Pseudo-panels.10.4 Alternative Methods of Pooling Time Series of Cross-section Data.10.5 Spatial Panels.10.6 Short-run vs Long-run Estimates in Pooled Models.10.7 Heterogeneous Panels.Notes.Problems.11. Limited Dependent Variables and Panel Data.11.1 Fixed and Random Logit and Probit Models.11.2 Simulation Estimation of Limited Dependent Variable Models with Panel Data.11.3 Dynamic Panel Data Limited Dependent Variable Models.11.4 Selection Bias in Panel Data.11.5 Censored and Truncated Panel Data Models.11.6 Empirical Applications.11.7 Empirical Example: Nurses' Labor Supply.11.8 Further Reading.Notes.Problems.12. Nonstationary Panels.12.1 Introduction.12.2 Panel Unit Roots Tests Assuming Cross-sectional Independence.12.3 Panel Unit Roots Tests Allowing for Cross-sectional Dependence.12.4 Spurious Regression in Panel Data.12.5 Panel Cointegration Tests.12.6 Estimation and Inference in Panel Cointegration Models.12.7 Empirical Example: Purchasing Power Parity.12.8 Further Reading.Notes.Problems.References.Index.

10,363 citations