Topic
Cash flow forecasting
About: Cash flow forecasting is a research topic. Over the lifetime, 3523 publications have been published within this topic receiving 110817 citations.
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TL;DR: This article used managerial control rights data for over 5000 firms from 31 countries to examine the net costs and benefits of cash holdings and found that when external country-level shareholder protection is weak, firm values are lower when controlling managers hold more cash.
Abstract: This paper uses managerial control rights data for over 5000 firms from 31 countries to examine the net costs and benefits of cash holdings. We find that when external country-level shareholder protection is weak, firm values are lower when controlling managers hold more cash. Further, when external shareholder protection is weak we find that firm values are higher when controlling managers pay dividends. Only when external shareholder protection is strong do we find that cash held by controlling managers is unrelated to firm value, consistent with generally prevailing U.S. and international evidence.
614 citations
TL;DR: In this paper, the determinants of corporate cash holdings in EMU countries were investigated and it was shown that cash holdings are positively affected by the investment opportunity set and cash flows and negatively affected by asset's liquidity, leverage and size.
Abstract: This paper investigates the determinants of corporate cash holdings in EMU countries. Our results suggest that cash holdings are positively affected by the investment opportunity set and cash flows and negatively affected by asset's liquidity, leverage and size. Bank debt and cash holdings are negatively related, which supports that a close relationship with banks allows the firm to hold less cash for precautionary reasons. Firms in countries with superior investor protection and concentrated ownership hold less cash, supporting the role of managerial discretion agency costs in explaining cash levels. Capital markets development has a negative impact on cash levels, contrary to the agency view.
609 citations
TL;DR: In this paper, the authors show that corporate cash holdings are a key driver of product market performance and provide evidence that larger relative-to-rivals cash reserves lead to systematic future market-share gains at the expense of industry rivals.
Abstract: This paper shows that corporate cash holdings is a key driver of product market performance. In particular, I provide evidence that larger relative-to-rivals cash reserves lead to systematic future market-share gains at the expense of industry rivals. Importantly, this “competitive” effect of cash turns out to be magnified when rivals face tighter financing constraints and when the amount of strategic interactions between competitors is substantial. Overall, the results suggest that corporate cash policy comprises a substantial strategic dimension.
590 citations
TL;DR: In this article, the authors developed a firm life cycle proxy using cash flow patterns, which provides a parsimonious indicator of life cycle stage that is free from distributional assumptions (i.e., uniformity).
Abstract: This study develops a firm life cycle proxy using cash flow patterns. The patterns provide a parsimonious indicator of life cycle stage that is free from distributional assumptions (i.e., uniformity). The proxy identifies differential behavior in the persistence and convergence patterns of profitability. For example, return on net operating assets (RNOA) does not mean-revert (spread of seven percent after five years between mature and decline firms) when examined by life cycle stage, which has implications for growth rates and forecast horizons. Further, determinants of future profitability such as asset turnover and profit margin are differentially successful in generating increases in profitability conditional on life cycle stage. Finally, investors do not fully incorporate the information contained in cash flow patterns and as a result, undervalue mature firms. The cash flow proxy is a robust tool that has applications in analysis, forecasting, valuation, and as a control variable for future research.
566 citations
TL;DR: In this paper, the authors compare the predictive abilities of earnings and cash flows for future cash flows and find that current and past earnings explain significantly more variation in future cash flow than current and current cash flows, but only after permitting the cash and accrual components of earnings to have different multiples.
Abstract: We compare the predictive abilities of earnings and cash flows for future cash flows. We base our predictions on a model of the relation between future cash flows and past earnings and its components, including cash flows. As predicted, we find that current and past earnings explain significantly more variation in future cash flows than current and past cash flows, but only after permitting the cash and accrual components of earnings to have different multiples. As predicted, disaggregating the accrual component of earnings significantly further enhances the predictive ability of earnings for future cash flows. Contrary to claims in the popular press, the depreciation and amortization components of earnings have significant predictive ability for future cash flows. Our inferences are robust to controlling for operating cycle and industry membership.
555 citations