Showing papers on "Cash flow forecasting published in 2016"
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06 Sep 2016
TL;DR: The Curse of Cash as discussed by the authors proposes a plan for phasing out most paper money, while leaving small-denomination bills and coins in circulation indefinitely, and addresses the issues the transition will pose, ranging from fears about privacy and price stability to the need to provide subsidized debit cards for the poor.
Abstract: The world is drowning in cash—and it’s making us poorer and less safe. In The Curse of Cash, Kenneth Rogoff, one of the world’s leading economists, makes a persuasive and fascinating case for an idea that until recently would have seemed outlandish: getting rid of most paper money. Even as people in advanced economies are using less paper money, there is more cash in circulation—a record $1.4 trillion in U.S. dollars alone, or $4,200 for every American, mostly in $100 bills. And the United States is hardly exceptional. So what is all that cash being used for? The answer is simple: a large part is feeding tax evasion, corruption, terrorism, the drug trade, human trafficking, and the rest of a massive global underground economy. As Rogoff shows, paper money can also cripple monetary policy. In the aftermath of the recent financial crisis, central banks have been unable to stimulate growth and inflation by cutting interest rates significantly below zero for fear that it would drive investors to abandon treasury bills and stockpile cash. This constraint has paralyzed monetary policy in virtually every advanced economy, and is likely to be a recurring problem in the future. The Curse of Cash offers a plan for phasing out most paper money—while leaving small-denomination bills and coins in circulation indefinitely—and addresses the issues the transition will pose, ranging from fears about privacy and price stability to the need to provide subsidized debit cards for the poor. While phasing out the bulk of paper money will hardly solve the world’s problems, it would be a significant step toward addressing a surprising number of very big ones. Provocative, engaging, and backed by compelling original arguments and evidence, The Curse of Cash is certain to spark widespread debate.
244 citations
TL;DR: Li et al. as mentioned in this paper examined the relation between political uncertainty and cash holdings for firms in China and found that during the first year of a new city government official's appointment, a firm, on average, holds less cash, which is consistent with the grabbing hand hypothesis of politician.
187 citations
TL;DR: This paper studied the liquidity properties of private equity cash flows using data from 837 buyout and venture capital funds from 1984 to 2010 and found that funds with a relatively high propensity to call capital in bad times perform better in both absolute and relative terms.
183 citations
TL;DR: In this paper, the authors identify three channels and the corresponding mechanisms through which corporate social responsibility may affect corporate cash holdings and show that the positive effect of CSR on cash holdings via the systematic risk channel is robust, while the effects of the other two channels are not.
166 citations
01 Jan 2016
TL;DR: In this paper, the authors present an empirical investigation to study the relationship between combined leverage and cash flow in terms of board of director ownership and corporate governance structures, using some statistical tests.
Abstract: Article history: Received December 5, 2015 Received in revised format February 16 2016 Accepted March 18 2016 Available online April 8 2016 Cash flow and leverage are two main components of any business firms. A good level of cash flow and leverage shows a desirable performance for business organizations. This paper presents an empirical investigation to study the relationship between combined leverage and cash flow in terms of board of director’s ownership and corporate governance structures. The study selects 86 randomly selected firms listed on Tehran Stock Exchange over the period 2009-2013. Using some statistical tests, the survey has indicated that there was a meaningful relationship between leverage and cash flow for firms with different corporate governance structures. The study has also determined that there was a meaningful relationship between leverage and cash flow for firms with different board of director’s ownerships. Growing Science Ltd. All rights reserved. 6 © 201
144 citations
TL;DR: This article showed that R&D investment explains a significant portion of the increase in the average cash-to-assets ratio of U.S. firms, which more than doubled between 1980 and 2012.
Abstract: We show that R&D investment explains a significant portion of the increase in the average cash-to-assets ratio of U.S. firms, which more than doubled between 1980 and 2012. In 1980, an average firm held $0.04 in cash for $1.00 of R&D spending, but this had increased to $0.60 by 2012. The increasing sensitivity of cash holdings to R&D investment and the increase in R&D spending of the typical firm explain over 20% of the increase in aggregate cash holdings. Intensified domestic and global competition appears to be an important explanation for the increased propensity of R&D-intensive firms to hoard cash.
113 citations
TL;DR: This paper examined the relation between the level of trust in a country and corporate cash holdings and found evidence in favor of the agency-based explanation for the relationship between trust and corporate stocks.
102 citations
TL;DR: In this paper, a continuous-time contracting problem under hidden action is studied, where the principal has ambiguous beliefs about the project cash flows and designs a robust contract that maximizes his utility under the worst-case scenario subject to the agent's incentive and participation constraints.
Abstract: We study a continuous-time contracting problem under hidden action, where the principal has ambiguous beliefs about the project cash flows. The principal designs a robust contract that maximizes his utility under the worst-case scenario subject to the agent’s incentive and participation constraints. Robustness generates endogenous belief heterogeneity and induces a tradeoff between incentives and ambiguity sharing so that the incentive constraint does not always bind. We implement the optimal contract by cash reserves, debt, and equity. In addition to receiving ordinary dividends when cash reserves reach a threshold, outside equity holders also receive special dividends or inject cash in the cash reserves to hedge against model uncertainty and smooth dividends. Ambiguity aversion raises both the equity premium and the credit yield spread. The equity premium and the credit yield spread are state dependent and high for distressed firms with low cash reserves.
94 citations
TL;DR: In this paper, the authors examined the influence of cash flow on the relationship between net working capital and firm performance, and found that firms with cash flow below the sample median exhibit lower investment in working capital, but firms with money flow above the sampled median have higher investment.
Abstract: Purpose – This paper aims to examine the influence of cash flow on the relationship between net working capital and firm performance. Design/methodology/approach – The paper uses unbalanced panel data regression analysis on a sample of 6,926 non-financial small and medium enterprises in the UK for the period from 2004 to 2013. Findings – The results indicate a strong concave relationship between net working capital and performance in the absence of cash flow; however, the relationship becomes convex after taking cash flow into consideration. The results further show that firms with cash flow below the sample median exhibit lower investment in working capital, but firms with cash flow above the sample median have higher investment in working capital. The results suggest that managers should consider their firms cash flow when determining the appropriate investment to be made in working capital, so as to improve performance. Practical implications – Overall, the results suggest that whilst firms with limite...
91 citations
TL;DR: This paper found that a combination of taxes, financing frictions, and agency problems leads to a valuation discount for foreign cash and documents real effects of how foreign earnings are taxed, and that firms underinvest domestically and overinvest abroad.
Abstract: The greater is the fraction of a firm’s cash held overseas, the lower shareholders value that cash. This goes beyond a pure tax effect — the repatriation tax friction disrupts the firm’s internal capital market, distorting its investment policy. Firms underinvest domestically and overinvest abroad. Our findings are more pronounced when firms are subject to higher repatriation tax rates, higher costs of borrowing, and more agency problems. Overall, our evidence suggests that a combination of taxes, financing frictions, and agency problems leads to a valuation discount for foreign cash and documents real effects of how foreign earnings are taxed.
76 citations
TL;DR: In this article, the authors study liquidity transformation in mutual funds using a novel data set on their cash holdings and provide evidence that mutual funds' cash holdings are not large enough to fully mitigate price impact externalities created by the liquidity transformation they engage in.
Abstract: We study liquidity transformation in mutual funds using a novel data set on their cash holdings. To provide investors with claims that are more liquid than the underlying assets, funds engage in substantial liquidity management. Specifically, they hold substantial amounts of cash, which they use to accommodate inflows and outflows rather than transacting in the underlying portfolio assets. This is particularly true for funds with illiquid assets and at times of low market liquidity. We provide evidence suggesting that mutual funds' cash holdings are not large enough to fully mitigate price impact externalities created by the liquidity transformation they engage in.
TL;DR: This article found that firms close 31% of their gap between target and actual cash ratio each year, and the adjustment speed is generally swifter if the actual Cash ratio exceeds the target ratio, possibly because it is cheaper to disgorge cash than it is to raise it.
TL;DR: This paper examined the chief executive officer optimism effect on managerial motives for holding more cash and found that optimistic managers hoard cash for growth opportunities, use relatively more cash for capital expenditure and acquisitions, and save more cash in adverse conditions.
Abstract: We examine the chief executive officer (CEO) optimism effect on managerial motives for cash holdings and find that optimistic and non-optimistic managers have significantly dissimilar purposes for holding more cash. This is consistent with both theory and evidence that optimistic managers are reluctant to use external funds. Optimistic managers hoard cash for growth opportunities, use relatively more cash for capital expenditure and acquisitions, and save more cash in adverse conditions. By contrast, they hold fewer inventories and receivables and their precautionary demand for cash holdings is less than that of non-optimistic managers. In addition, we consider debt conservatism in our model and find no evidence that optimistic managers’ cash hoarding is related to their preference to use debt conservatively. We also document that optimistic managers hold more cash in bad times than non-optimistic managers do. Our work highlights the crucial role that CEO characteristics play in shaping corporate cash holding policy.
TL;DR: This article study the evolution of corporate cash holdings from 1920 to 2014 and find that the recent increase in average cash is not unique but is one of three large magnitude changes in average Cash over the past century.
Abstract: We study the evolution of corporate cash holdings from 1920 to 2014. We show that the recent increase in average cash is not unique but is one of three large magnitude changes in average cash over the past century. However, there are several key differences in modern cash holdings relative to the earlier periods: Earlier changes in cash were broad-based and within-firm; in contrast, the modern run-up in average cash is dominated by cash-rich Nasdaq firms entering the sample, with negative or flat within-firm changes. Moreover, the modern increase in aggregate cash did not start until about 2000.Perhaps surprisingly, we find that estimated relations thought to support precautionary and transaction motives for holding cash are weaker or disappear earlier in the century, when financial frictions were arguably more severe. In general, firm characteristics have little ability to explain time-series changes in average or aggregate cash through the century, but macroeconomic forces, corporate profitability and investment, and repatriation tax incentives help fill this gap.
TL;DR: In this paper, a dynamic panel model for the period 2001-2012 for the Chinese energy-related public listed firms was used to test whether they make some sub-optimal investment decisions following the well-established free cash flow problem in the finance literature, originally identified by Jensen (1986) for the US oil sector.
TL;DR: This paper examined the relationship between cash and stock market performance during the economic crisis and found that the relationship shifts from a diminishing returns curve before the recession to a more pronounced inverse U-shaped relationship during the crisis.
TL;DR: In this article, the authors show that higher initial cash levels are associated with higher prices when fundamental values are constant over time and that high cash levels will lead to bubbles, if the cash is introduced before the market opens.
Abstract: Previous experimental research on asset markets has reported that the level of cash available to traders does not affect asset prices when fundamentals follow a time trajectory that is constant over time. This contrasts with other research indicating that greater cash levels increase prices when fundamental values are decreasing over time. We report a new experiment in which we show that greater initial cash levels are indeed associated with higher prices when fundamental values are constant over time. Thus, high cash levels will lead to bubbles, if the cash is introduced before the market opens. Our results reconcile the two previous sets of findings. (JEL C90, D03, G02, G12) I. INTRODUCTION Smith, Suchanek, and Williams (1988) initiated the experimental study of markets for multiperiod, finitely lived assets. A considerable subsequent literature has consistently observed price bubbles in such markets. This consistency makes the Smith et al. paradigm a popular one for identifying and studying the factors that promote or dampen bubbles (see Palan 2013, for a survey of this literature). It is known that some key market parameters influence prices and the tendency for bubbles to form. Two of these parameters are (1) the time trajectory of fundamental values, and (2) the quantity of cash available for purchases compared to the quantity of assets available for sale. A number of studies in this literature have contrasted the behavior of different fundamental value time paths. The speed and effectiveness of price discovery, the tendency of market prices to track fundamentals, depend on the time path of the fundamental value trajectory (Breaban and Noussair 2015; Giusti, Jiang, and Xu 2012; Noussair and Powell 2010; Stockl, Huber, and Kirchler 2014). A trajectory that is constant over time generates closer adherence to fundamental values than a time path that is monotonically decreasing (Kirchler, Huber, and Stockl 2012; Noussair, Robin, and Ruffieux 2001; Smith, Van Boening, and Wellford 2000). (1) Another variable influencing market prices is the amount of liquidity traders have available for purchases. It is well established that in the case of decreasing fundamentals, the price level is affected by liquidity, as measured by cash endowment levels. Greater cash endowments lead to higher prices (Caginalp and Ilieva 2008; Caginalp, Porter, and Smith 1998, 2000, 2001; Haruvy and Noussair 2006). Cash and asset endowment levels are typically normalized into a measure of liquidity called the cash-to-asset (C/A) ratio (Caginalp, Porter, and Smith 2001). This is the ratio of cash in the economy, the total amount available for purchases of assets, to the value of all of the units of asset in the economy, evaluated at the fundamental value. In period t, the C/A ratio is given by [(C/A).sub.t] = [summation over (i)][c.sub.it]/[summation over (i)][q.sub.it][f.sub.t] where [(C/A).sub.t] is the C/A ratio in period t, [c.sub.it] is the cash available to trader i in period t, [q.sub.it] is the quantity of units that trader i holds in period t, and [f.sub.t] is the period t fundamental value. The ratio can be interpreted as the ratio of the largest long position to the largest short position an average trader can take, assuming that the market price is equal to the fundamental. To date, it has been shown that the cash asset ratio affects prices only for the case when fundamental values are decreasing. To our knowledge, only two studies have explored the effect of cash on prices when fundamentals are constant over time (Kirchler, Huber, and Stockl 2012, hereafter KHS, and Kirchler et al. 2015). In both of these studies, the additional cash is introduced after one or more periods of trading have elapsed, rather than before the market opens. KHS report that increases in cash endowments do not affect prices in the case of constant fundamental values. Because the authors interpret bubbles as a consequence of subject confusion about the experimental environment, they conclude that the constant fundamental value setting leads to less confusion on the part of subjects. …
TL;DR: This article investigated the factors driving the unprecedented rise in corporate liquidities since the 1970s and found that an economywide reduction in the cost of holding liquidities and an increase in risk best explain the rise in cash holdings and the widespread use of credit lines.
Abstract: We investigate the factors driving the unprecedented rise in corporate liquidities since the 1970s We find that an economy-wide reduction in the cost of holding liquidities and an increase in risk best explain the rise in cash holdings and the widespread use of credit lines The structural estimation results shed light on two widely acknowledged motives for holding cash The precautionary motive and the liquidity motive translate risk exposure into cash holdings Our results, however, do not suggest that firms have become more prudent over time It is higher liquidity needs that has forced firms to hold more cash and use more credit lines [ABSTRACT FROM AUTHOR]
TL;DR: In this paper, the authors test whether internal control weaknesses (ICWs) endanger cash resources that manifests in a lower value of cash and find that investors value liquid assets in ICW firms substantially less than they do in non-ICW firms.
Abstract: We test whether internal control weaknesses (ICWs) endanger cash resources that manifests in a lower value of cash. Our results indicate that investors value liquid assets in ICW firms substantially less than they do in non-ICW firms. The negative valuation effect of weak internal control mainly concentrates on ICWs related to the control environment or overall financial reporting process. While firms remediating ICWs reverse the value loss from holding cash, firms whose internal control deteriorates or remains ineffective exhibit a lower value of cash. The marginal effect of ICWs on the value of cash remains significant after controlling for existing governance mechanisms and accounting conservatism, highlighting a unique governance role of internal control in mitigating unresolved agency problems and safeguarding corporate resources.
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TL;DR: In this article, the authors explore whether changes in interest rates affect household consumption by changing the amount of cash that households have to spend and find that lower interest rates reduce the cash flows available to households that receive interest on bank deposits and that this is associated with lower spending by these households.
Abstract: We explore whether changes in interest rates affect household consumption by changing the amount of cash that households have to spend – the household cash flow channel of monetary policy. Based on a panel of Australian households, we find that, when interest rates decline, the cash flows and durable goods spending of households with variable-rate mortgage debt increases relative to comparable fixed-rate borrowers. This is consistent with a 'borrower' cash flow channel. We also find that lower interest rates reduce the cash flows available to households that receive interest on bank deposits and that this, in turn, is associated with lower spending by these households. This is consistent with a 'lender' cash flow channel. Overall, the borrower channel is a stronger channel of monetary transmission than the lender channel, such that lower interest rates will typically increase household cash flows and lead to higher spending in aggregate. The central estimates imply that lowering interest rates by 100 basis points would be associated with an increase in aggregate household expenditure of about 0.1 to 0.2 per cent per annum. Overall, the household cash flow channel appears to be an important channel of monetary transmission in Australia.
TL;DR: In this paper, the authors examined the relationship between innovation and financial factors in a regression that include changes in cash holdings, cash flow and debt issues, and found that innovative firms in high-tech sectors tend to offset the effect of a negative financial shock by exploiting internal cash resources.
Abstract: Using data from approximately 8300, primarily small, exporting firms in Sweden observed over the business cycle period 1997–2007, we examine the relationship between innovation and financial factors in a regression that include changes in cash holdings, cash flow and debt issues. Our nonlinear econometric approach with interaction variables between recession period, technology intensity and finance suggests that innovative firms in high-tech sectors tend to offset the effect of a negative financial shock by exploiting internal cash resources. No corresponding link between innovation and financial factors is found for medium and low-technology exporters.
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TL;DR: In this article, a dynamic model of corporate investment, saving, and diversification decisions was used to find that investment dynamics are more important in explaining the cash differences than financing frictions.
Abstract: Why do diversified firms hold significantly less cash than focused firms? We study this using a dynamic model of corporate investment, saving, and diversification decisions. We find that investment dynamics are more important in explaining the cash differences than financing frictions. More efficient internal capital markets increase cash differences and are especially valuable when a firm diversifies or refocuses. Contrary to static models, more diverse conglomerates have lower cash differences. Endogenous selection – diversifying firms are larger and have better growth opportunities – accounts for 68% of the cash difference while the diversification event itself reduces cash holdings by 32%.
TL;DR: In this paper, the effect of cash windfalls on the acquisition policy of companies was studied. And they found that companies that could realize a cash windfall by selling equity stakes see an increase in the probability of acquiring another company by 14%.
TL;DR: This article examined the impact of creditor rights and country governance on cash holdings using a sample of firms from 47 countries and found that cash holdings are smaller when both creditor rights (CRL and CCG) are high.
Abstract: This study examines the impact of creditor rights and country governance on cash holdings using a sample of firms from 47 countries. We hypothesize that cash holdings are smaller when both creditor rights and country governance are high. In these circumstances firms will not need to hold as much cash for future investments needs (precautionary funds) because firms will expect that funds will be available in the future. Our findings support our hypothesis and hold for alternative definitions for cash holdings, different country samples, different definitions of governance and concerns about endogeneity.
TL;DR: In this article, the authors analyzed how cash flow shocks influence the investment and financing decisions of shipping firms in different economic environments and found that even financially healthy shipping firms felt strong negative effects on their financing activities during the recent crisis.
Abstract: Using a system of equations model, we analyze how cash flow shocks influence the investment and financing decisions of shipping firms in different economic environments. Even financially healthy shipping firms felt strong negative effects on their financing activities during the recent crisis. These firms were nevertheless able to increase long-term debt. Banks internalized the impact of foreclosure decisions on vessel prices and avoided an industry-wide collateral channel effect. Even during benign economic conditions, financially weak shipping firms underinvest because of their inability to raise sufficient external capital. The substitution between long- and short-term debt during the pre-2008 crisis periods shows that the composition of financing sources is more indicative of whether firms face financial constraints than the pure size of the financing-cash flow sensitivities. An analysis of firms’ excess cash holdings confirms the importance of financial flexibility.
TL;DR: In this paper, the authors discuss the primary motivations for net debt and net equity issuances and the static tradeoff theories that explain the debt versus equity choice, even for firms that are running out of cash.
Abstract: Immediate cash needs are the primary motive for net debt issuances and a highly important motive for net equity issuances. Net debt issuers immediately spend almost all of the proceeds, but net equity issuers save most of the proceeds. Conditional on issuing a security, corporate lifecycle, precautionary saving, market timing, and static tradeoff theories are important in explaining the debt versus equity choice, even for firms that are running out of cash.
TL;DR: In this paper, the authors conduct a detailed empirical study of the effects of cash flow volatility on corporate bond yield spreads, using both forward-looking and historical volatility measures, and show that cash flow risk has strong statistical significance and economic effects on spreads, after controlling for a battery of factors.
Abstract: We conduct a detailed empirical study of the effects of cash flow volatility on corporate bond yield spreads. We use both forward-looking and historical cash flow volatility measures. Using a large sample of transaction prices for investment grade straight bonds, we show that cash flow risk has strong statistical significance and economic effects on spreads, after controlling for a battery of factors which are known to be important determinants of spreads. The effects of cash flow risk are more pronounced for firms that are at greater risk of default, and when cash flow risk is measured based on more recent information. Our results provide empirical support to structural models of bond pricing and emphasize the effect of fundamentals-related information uncertainty on bond prices.
TL;DR: Results and analysis are presented by applying this robust optimization approach to support the decision maker in relation to the trade-off between risk and return, showing that the approach is able to generate solutions as good as, or better than, the ones of the treasury of the stationery company.
TL;DR: In this paper, the authors examine a firm's classification shifting behavior in the statement of cash flows under the IFRS regime and examine the determinants and economic consequences of classification shifting to manage operating cash flows.
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01 Jan 2016
TL;DR: The Reserve Bank will maintain the public's confidence in Australia's banknotes by continuing to ensure that banknotes are of high quality and secure from counterfeiting as discussed by the authors, and the current mix of banknote denominations continues to meet community demand for a secure means of payment and store of wealth.
Abstract: Australian consumers have increasingly been using electronic payment methods in preference to cash for their transactions. The overall demand for cash in Australia, however, remains strong. There is ongoing demand for cash for non-transaction purposes, particularly as a store of wealth. While the role of cash in society is evolving, it is likely to remain an important feature of the payments system and economy for the foreseeable future. Moreover, the current mix of banknote denominations continues to meet community demand for a secure means of payment and store of wealth. Given the ongoing importance of cash, the Reserve Bank will maintain the public's confidence in Australia's banknotes by continuing to ensure that banknotes are of high quality and secure from counterfeiting.