THE RELATIONSHIP BETWEEN DIVIDEND CHANGES AND CASH FLOW: AN EMPIRICAL ANALYSIS

It is often assumed that cash flow affects dividend payout. This study provides evidence on the incremental information content of cash flow numbers over Profits and Previous Year's Dividends (Lintner's model) in explaining changes in cash dividends. It further examines whether different measures of cash flow differ in information content for dividend-increasing and dividend-decreasing firms. Lintner's model of dividend changes is robust across firms with either dividend increases or decreases. The null hypotheses, that no definition of cash flow adds to the model, could not be rejected for any of the definitions.     

A NOTE ON THE RELATIONSHIP BETWEEN SYSTEMATIC RISK AND GROWTH IN EARNINGS

This paper provides a simple analytical derivation of the relationship between growth in earnings and systematic risk. Theoretically and empirically it concludes that this relationship is positive.     

CASH FLOW REPORTING AND DISTRIBUTIONAL ALLOCATIONS: A NOTE

This Note clarifies certain problems associated with the construction and interpretation of cash flow statements.     

THE RELATIONSHIP BETWEEN DURATION AND ECONOMIC DEPRECIATION: A NOTE

This note derives an expression for duration in terms of the economic depreciation of a capital budgeting project or financial instrument. By showing how the decline in the value of an asset or liability influences duration, additional insight into the characteristics of this measure is obtained. The new formula shows that duration equals a standard value, which is adjusted for depreciation or appreciation.     

CASH FLOW ACCOUNTING AND THE ALLOCATION PROBLEM

Cash flow accounting (CFA) proposals typically have included firm statements that CFA data are allocation-free. This is not entirely true if the term allocation is interpreted in a wide sense. However, it can be argued that most allocations can be avoided in CFA systems, and this paper is an attempt to present this argument. In particular, it aims to strengthen the case for CFA in practice.     

ON THE CORRESPONDENCE BETWEEN THE BAUMOL-TOBIN AND MILLER-ORR OPTIMAL CASH BALANCE MODELS

In this note, the author identifies a correspondence relationship between the Baumol-Tobin (BT) and Miller-Orr (MO) optimal cash balance frameworks and specifies the conditions under which both models imply the same level of optimal cash balances. Realistic applications of these models will concern net cash flows that exhibit behavior somewhere between the two extremes of BT entirely deterministic and MO completely random. The author demonstrates that if the correspondence relationship is satisfied, either the BT or the MO cash balance model can be employed since both models imply the same result. One conjecture open for empirical verification is that cash balance models perform more (less) adequately for groups of firms that satisfy (violate) the correspondence relationship.     

THE RELATIONSHIP BETWEEN FINANCIAL PERFORMANCE AND STOCK MARKET BASED MEASURES OF CORPORATE DIVERSIFICATION

This study examines the relationship between corporate diversification and financial performance. The use of a stock market based measure of diversification allowed a much larger database than in previous studies and overcame the subjective nature of measuring internal diversification. Because previous researchers found that firm size affected performance, size was controlled in this analysis. The authors conclude that there is no statistically significant relationship between the degree of internal diversification and financial performance.     

THE RELATIONSHIP BETWEEN SECURITIES YIELDS, FIRM SIZE, EARNINGS/PRICE RATIOS AND TOBIN'Sq

Several studies in financial economics have found a positive relationship between stock returns and firm size. This relationship persists even after controlling for various measures of risk. There is also a well documented inverse relationship between stock returns and the Price/Earnings (P/E) ratio. However, there is still substantial controversy whether the size effect subsumes the P/E effect or vice versa. In this paper, we demonstrate that neither the size nor the P/E effect subsumes the other. We introduce Tobin's q as a variable that is closely related to stock returns as well as to both the size and P/E effects and show that the size effect persists after controlling for both P/E and q , while the P/E effect becomes much smaller after controlling for size and q . This leads us to conclude that the size effect is more robust to additional controls such as Tobin's q than the P/E effect. Finally, the size effect is almost entirely a January phenomenon whereas the P/E effect is a non-January effect.     

THE RELATION BETWEEN THE FEDERAL FUNDS CASH AND FUTURES MARKETS

The introduction of futures contracts did not alter the regularity in the cash market that results from the Federal Reserve regulation of the bank-settlement process. Although we find a positive preholiday effect in the Fed funds futures returns, we do not find evidence that Federal Reserve regulations cause that effect. Contrary to previous observations for other futures contracts, we find Fridays and preholidays have the largest net volume. We suggest this finding of high volume is consistent with hedging activity by financial institutions before market closings.     

A NOTE ON A CASH MANAGEMENT MODEL ALLOWING FOR OVERDRAFTS

This paper considers the proportion of time a current bank account should be in credit, given the opportunity, overdraft and transfer costs involved. Recurrence relations for the overdraft limit and timing of transfers are also established.     

金融创新力与银行微观经营效益关系探讨

本文首先指出国有商业银行面临贫困增长的严峻现实,并从金融创新的角度,指出国有商业银行微观效益不佳的根源在于金融创新力水平低下.为量化分析和说明问题,作者提出以银行员工创造的人均利润与人均占有的金融资产的比值,作为度量银行金融创新力水平的经济计量值,并通过对历史数据的实证分析,论证金融创新力水平与人均利润高度相关,同时说明自1986年以来国有商业银行金融创新力水平总体呈下降趋势,外延式粗放经营现象十分严重.作者认为金融创新力水平持续走低的深层根源在于体制上的障碍,国有商业银行要想走出困境必须进行产权制度创新,以此带动金融业务、经营方式和同业竞争的全面创新.     

ON THE THEORETICAL RELATIONSHIP BETWEEN BUSINESS RISK AND SYSTEMATIC RISK

This article develops a theoretical relationship between systematic risk and business risk. It is an area that has not been substantially developed in the literature. Rubinstein (1973) and Lev (1974) both developed theoretical models of systematic risk allowing for stochastic demand. A model is derived that allows for prices, variable costs and demand to be simultaneously stochastic, utilizing the covariance of the product of random variables. The temporal stationarity of unlevered systematic risk is dependent upon the temporal stationarity of the theoretical structure derived. Insight is gained as to a potential source of the empirically observed temporal instability of levered systematic risk.     

THE RELATIONSHIP BETWEEN BEFORE- AND AFTER-TAX YIELDS ON FINANCIAL ASSETS

In this research, the traditional approximation that after-tax yields equal before-tax yields times one minus the tax rate is shown in general to be incorrect. The traditional relationship holds only for one-year assets and perpetuities when a single tax rate applies to both ordinary income and capital gains. For all other multiperiod assets, the correct relationship is much more complex and is a function of the statutory tax rates on ordinary income and capital gains, the holding period, the dividend growth rate for common stocks, and any premium or discount on bonds. The direction of bond price changes is related inversely to the direction of the tax rate changes, but the direction of common stock price changes is related ambiguously to the direction of tax rate changes.     

FURTHER EVIDENCE ON EMPIRICAL RELATIONSHIPS BETWEEN EARNINGS AND CASH FLOWS

Recently in Australia, regulations have been proclaimed requiring companies to make cashflow disclosures in addition to earnings disclosures from 30 June 1992. This paper provides evidence on relationships between earnings and cash flow measures and in so doing examines the external validity of a U.S.A. study of these relationships by Bowen, Burgstahler and Daley [1986]. We also extend their study through an industry analysis of the relationships. Evidence is presented first that shows low correlations between traditional cash flow measures (i.e., net income plus depreciation and amortisation; and working capital from operations) and a more refined cash flow measure (with additional adjustments for changes in non-cash current assets and current liabilities). Second, traditional cash flow measures exhibit high correlations with earnings, while the more refined cash flow measure has a lower correlation with earnings. Finally, traditional cash flow measures better predict future cash flows than models based on earnings or a more refined cash flow measure. The industry evidence, albeit on small sample sizes, shows that the results on the first two issues, but not the latter issue, are generalisable across industry categories.