Governance mechanisms, investment opportunity set and SMEs cash holdings

This study analyses the effect of firm characteristics and governance mechanisms on cash holdings for a sample of UK SMEs. The results show that UK SMEs with greater cash flow volatility and institutional investors hold more cash; whereas levered and dividend paying SMEs with non-executive ownership hold less cash. We also find that ownership structure is significant only in explaining the cash holdings for firms with high growth investment opportunities, and leverage is only significant in explaining the cash held by firms with low growth investment opportunities. Our findings suggest that internal governance mechanisms are more effective for SMEs with high growth investment opportunities, while external governance mechanisms, such as capital market monitoring, are more effective for firms with low growth investment opportunities.     

How and Why Do Firms Adjust Their Cash Holdings toward Targets? Evidence from China

We examine the dynamic adjustment of cash holdings of publicly traded Chinese firms during 1998–2006. The empirical evidence is supportive of the dynamic trade-off theory of cash holdings. In particular, there is strong evidence of asymmetric adjustments, i.e., adjustments from above the target are significantly faster than those from below. Moreover, the speeds of adjustment (SOA) are heterogeneous for firms facing differential adjustment costs. More specifically, the adjustment speed is higher in firms with bank lines of credit, positively related to the deviation from the target, but it is negatively related to firm size. Furthermore, in terms of adjustment method, firms make adjustments to their targets primarily through debt and equity financing when they are in cash shortage, On the other hand, the dividend payments play a minimal role in it. Lastly, in terms of motives for adjustment, we find that the precautionary motive arising from financial constraints well explains the cash holdings adjustment behaviors of Chinese listed firms.     

融资约束与资本结构的非对称调整——基于动态门限模型的经验证据

以1999—2009年中国上市公司面板数据为研究对象,围绕融资约束对资本结构调整行为的影响,以公司规模和现金持有水平作为衡量融资约束的指标,采用动态面板门限模型展开研究。结果表明,大规模和高现金持有的公司会表现出更快的调整速度,非融资约束公司比融资约束公司的调整速度要快30%以上。本文解决了以往研究中存在的分组模糊性及忽视个体异质性缺陷的问题,实证发现融资约束程度的降低能有效提高公司的资本结构调整速度。     

How does Financial Distress Affect Small Firms’ Financial Structure?

This paper provides new evidence on the financial structure of small firms by emphasizing the role played by financial distress. We specify a model of debt adjustments that allows us to investigate the specific nature of the adjustment process towards target debt levels in small firms, which is then extended to account for the effect of financial distress on financial structure decisions. Our models were estimated by the Generalized Method of Moments on a data panel of small Portuguese firms during a period of recession, in which a substantial proportion of the companies analyzed faced a financial distress situation. We find that small firms do adjust their debt ratios towards target levels, the speed of adjustment being faster in the shorter term. Our results also indicate that there are major differences in the determinants of long-term and short-term debt, highlighting the role played by debt maturity in explaining a firm’s financial structure. Finally, random behavior is observed in financially distressed firms, who seem to be disoriented when making their financial structure decisions.     

现金持有量决策具有战略效应吗?——基于现金持有量的平均效应与区间效应的研究

文章根据掠夺理论来考察现金持有量是否具有增加产品市场业绩的战略效应。研究结果表明,就平均效应而言,现金持有量能够增加企业的产品市场业绩;就区间效应而言,现金持有量的战略效应呈现出随着现金持有水平的提高而逐渐增加的趋势。进一步地检验结果表明大量持有现金引起的投资是造成现金持有量的区间效应呈增加趋势的主要原因,且最终也增加了企业价值。文章还发现行业的竞争强度以及整体财务状态也会影响现金持有量的战略效应。     

Anticorruption,political connections,and corporate cash policy: Evidence from politician downfalls in China

We examine how firms change their cash policies in response to the downfall of corrupt politicians in China. We find that firms connected to their local government increase cash holdings when high-profile politician downfalls occur in the government. Consistent with the precautionary saving argument, the effect is stronger for firms that have greater investment opportunities or face greater financial constraints. Compared to unaffected firms, affected firms save more cash out of cash flows and have a higher marginal value of cash holdings. Overall, we show that the collapse of firms' political connections has significant impacts on those firms' financial policies.     

On the prediction of financial distress in emerging markets: What matters more? Empirical evidence from Arab spring countries

This study explores the main determinants of financial distress in 11 emerging countries. Using two-way cluster-robust standard errors, evidence shows that matured, profitable, liquid, small firms with high market-to-book ratio and low growth in assets are less prone to financial distress. Moreover, well-developed financial markets in countries with low levels of corruption reduce financial distress. Furthermore, it uses tests for equality between coefficients and moderates multiple regressions to capture the effect of firm life cycle on financial distress, over three Arab Spring sub-periods. The results imply adopting strategies to increase earned capital and cash holdings, avoid over-investment, and facilitate risk diversification strategies.     

On the adjustment speed of SMEs to their optimal capital structure

The aim of this paper is to analyse the speed of adjustment of small and medium-sized enterprises (SMEs) to the target leverage. By applying a system GMM technique to Spanish panel data collected during the period 1995?C2005, we estimate a partial adjustment model in which both target leverage and speed of adjustment are simultaneously endogenized. We provide empirical evidence on the determinants of target leverage and the speed of adjustment. More specifically, the rate of financial flexibility, growth opportunities and size are positively related to the speed of adjustment, whereas the distance to the optimal ratio of debt shows a negative impact. Our findings demonstrate that, in terms of sample mean, a high percentage of Spanish SMEs adjust rationally to their target. Additionally, the SMEs analysed appeared to be over-levered and fairly motivated to adjust (annual adjustment speed: 26%).     

Cash holdings and business group membership

This study examines the cash policies of business group members (i.e., affiliates). Using a panel dataset of private Belgian affiliates and comparable non-affiliated firms, the empirical results show that business group affiliates hold significantly smaller amounts of cash as compared to non-affiliated firms. This finding is consistent with the notion that affiliates can afford to keep lower cash reserves because these firms can access the internal capital market of the group. The analysis also combines affiliate level and group level data to evaluate cash drivers and shows that groups in financial distress reduce cash holdings in affiliates. However, affiliates that are more important for the group's reputation and operations maintain cash levels comparable to affiliates belonging to financially healthy groups.     

Economic policy uncertainty and cash holdings: Evidence from BRIC countries

This paper examines the effect of Economic Policy Uncertainty (EPU) on cash holding decisions of firms in BRIC countries. Our focus is on the firms in BRIC countries, a particularly interesting group of countries to consider given their increasingly important role in the world economy. By using firm-level data through the 10 years period of 2006–2015, we find that firms prefer to hold more cash when uncertainty increases after controlling for firm level variables with industry and year fixed effects. The results are robust to alternative control variables, EPU calculations and selection of sub-samples. In addition to the country specific EPU levels, global EPU also has a significant positive impact on corporate cash holdings.     

Corruption and cash holdings: Evidence from emerging market economies

We examine the effect of corruption on cash holdings and cash value using a panel data set of 4236 firms from 16 emerging market economies. We find that the cash holdings are positively related to the corruption and by managing their cash holdings upwards, the firms can benefit in the corrupt environment by trading cash. Furthermore, cash holding adds value to the firms. However, it is insignificant when the firms are operating in high corruption environment with low investor protection. Overall, the evidence suggests that corruption play an important role in shaping the cash policies of firms in emerging markets.     

The financial determinants of corporate cash holdings: Evidence from some emerging markets

This paper investigates corporate cash holdings in developing countries. In particular, we look into the effect of capital structure and dividend policy on cash holdings in Brazil, Russia, India, and China and compare our results with a control sample from the US and the UK. Our sample contains 1992 firms across these countries for the period 2002–2008. We employ Instrumental Variables analysis to control for the endogeneity of the financial policies (cash holdings, capital structure, and dividend policy). Our results show some evidence that capital structure and dividend policy affect cash holdings. There are similarities between developed and developing countries on the factors determining corporate cash holdings. The results of our cross-country model provide evidence that capital structure, dividend policy, and firm size are important factors in determining cash holdings. Finally, we show that firms operating in countries with low shareholder protection hold more cash.     

The Effect of Governance Mechanisms on Small and Medium‐Sized Enterprise Cash Holdings: Evidence from the United Kingdom

This paper investigates the impact of governance mechanisms on small and medium‐sized enterprise (SME) cash holdings from 2000 to 2009, employing static and dynamic panel data analyses. We find no evidence that firm governance index and insider ownership affect cash holdings. This might indicate that governance mechanisms in SMEs are relatively weak. We also report that chief executive officer compensation has a positive effect on cash holdings. Firm‐specific factors such as firm size, leverage, and liquidity negatively affect cash holdings, whereas the research and development ratio and operating risk are positively associated with them. Finally, SMEs have target cash holdings and adjust to these.     

Alignment or entrenchment? Corporate governance and cash holdings in growing firms

This study contends that the association between corporate cash holdings and corporate governance is subject to the investment environments that firms face. For example, firms with an abundance of investment opportunities have a strong incentive to hold cash in order to maintain their competitive positions. Shareholders accept high levels of cash holdings in such growing firms if corporate governance can protect their interests. This study examines the effects of corporate governance on cash holdings for a sample of high-tech firms. The results show that CEO ownership, the directorship of venture capitalists (VCs), and independent directors play critical roles in corporate cash policy. In addition, the boards are more effective when the firms' CEOs are also their founders or when VCs hold a large stake of company shares. The effects of corporate governance are more significant in younger firms while the effects of firm-specific economic variables are more significant in older firms in the sample.     

现金持有、融资约束与企业价值——基于门槛回归模型的实证检验

文章基于门槛回归模型,对融资约束是否会影响现金及超额现金与企业价值的关系进行实证检验。结果表明,现金及超额现金与企业价值的关系均存在显著的门槛效应。在弱融资约束企业,现金及超额现金的账面价值高于其市场价值,而在强融资约束企业,现金及超额现金的账面价值低于其市场价值,这支持了代理理论和融资约束理论,说明弱融资约束企业滥用现金的代理问题较为严重,现金持有对企业价值具有负向影响,强融资约束企业持有现金,能够抓住更多投资机会,现金持有对企业价值具有正向影响。     

Financial Constraints and Small and Medium-Sized Firms’ Export Propensity: Evidence from Portuguese Manufacturing Firms

The internationalization of firms through exports is often crucial to their survival and growth in this era of globalization. This is particularly the case for small and medium-sized enterprises (SMEs) operating in small and saturated markets, as is the case in Portugal. However, firms face several barriers to exporting, and this study aims to verify whether financial constraints influence a firm’s export propensity. The empirical analysis is based on a sample of 12,732 Portuguese manufacturing SMEs during the period 2008–2012, and tests two different proxies of financial constraints: the liquidity and leverage ratios. The results indicate that the SMEs in less healthy financial positions are less likely to export than the others are, although the impact of financial constraints on these Portuguese firms appears to be relatively small.     

Corporate cash holdings and promoter ownership

We examine the relationship between corporate cash holdings and promoter ownership for a sample of Indian non-financial firms. Consistent with the arguments of the ‘efficient monitoring hypothesis’, our results broadly suggest that promoter ownership is negatively associated with cash holdings, thereby highlighting the role of large owners in preventing cash accretion in an emerging market context. Indicating prominent influence of corporate ownership on cash management, we find that corporate non-promoter ownership is also negatively related with cash holdings. With regard to promoter ownership of foreign entities, our results suggest that cash holdings share a U-shaped relationship with ownership of foreign promoter corporations. In addition, our findings provide weak evidence to support a more pronounced negative association between cash holdings and promoter ownership for group-affiliated firms as compared to non-affiliated firms since the former faces lower financial constraints on account of access to internal capital markets. Finally, we perform long-term effect analysis in order to reinforce robustness of our results.     

The Impact of Human Resource Practices and Compensation Design on Performance: An Analysis of Family-Owned SMEs

A sample of 168 family-owned fast growth small and medium enterprises (SMEs) was used to empirically examine the consequences of five human resource practices on sales growth performance. The results suggest that training and development, recruitment package, maintaining morale, use of performance appraisals, and competitive compensation were more important for high sales-growth performing firms than for low sales-growth performing firms. In addition, we examined the use of incentive compensation in the form of cash, noncash, and benefits and perks for four different levels of employees in family-owned SMEs. The findings suggest that high sales-growth performing firms used more cash incentive compensation at every level in the organization.     

Firm Growth and Liquidity Constraints: A Dynamic Analysis

Using a large unbalanced panel data set of Portuguese manufacturing firms surviving over the period from 1990 to 2001, the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth. We use a GMM-system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth. The model is estimated for all size classes, including micro firms. Our findings reveal that smaller and younger firms have higher growth-cash flow sensitivities than larger and more mature firms. This is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms. Nevertheless, the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment/cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect. Besides, firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old. Finally, these results have significant policy implications.      

高管的银行背景、所有权性质与企业现金持有决策

本文分析高管的银行背景是否影响企业现金持有决策,以及这种影响在国有企业和民营企业之间是否存在显著差异。基于中国非金融类上市公司2003－2013年的数据,检验发现,那些聘请具有银行背景的人士担任高管的企业具有显著更低的现金持有水平和更快的现金持有调整速度。相对于国有企业,高管银行背景对企业现金持有决策的影响在民营企业显著更强。上述研究结论有助于揭示社会资本在促进企业发展中的具体运行机制,为上市公司做出更优的现金持有决策具有重要的启示意义。