Managerial optimism and corporate cash holdings

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ly Thi Hai Tran ◽  
Thoa Thi Kim Tu ◽  
Thao Thi Phuong Hoang
Keyword(s):  
Fixed Effects ◽  
Generalized Method Of Moments ◽  
Cash Holdings ◽  
Annual Reports ◽  
Cash Holding ◽  
Growth Opportunities ◽  
Content Type ◽  
Managerial Optimism ◽  
Linguistic Tone ◽  
Corporate Cash Holdings

PurposeThis paper examines the effects of managerial optimism on corporate cash holdings.Design/methodology/approachThe authors construct a novel measure of managerial optimism based on the linguistic tone of annual reports by applying a Naïve Bayesian Machine Learning algorithm to non-numeric parts of Vietnamese listed firms' reports from 2010 to 2016. The paper employs firm and year fixed effects model and also uses the generalized method of moments estimation as robustness checks.FindingsThe authors find that the cash holding of firms managed by optimistic managers is higher than the cash holdings of firms managed by non-optimistic managers. Managerial optimism also influences corporate cash holdings through internal cash flows and the current year’s capital expenditures. Although the authors find no evidence that optimistic managers hold more cash to finance future growth opportunities in general, optimistic managers hold more cash for near future investment opportunities than non-optimistic managers do.Research limitations/implicationsThe novel measure proposed in this study is expected to provide great potential for future finance studies investigating the relation between managerial traits and corporate policies since it is applicable for any levels of financial market development. In addition, the findings highlight the important role, both direct and indirect, of managerial optimism on cash holdings. Related future research should take this psychological trait into account to gain a better understanding of corporate cash holding.Originality/valueThis paper helps to extend the literature on managerial optimism measurement by introducing a new measure of managerial optimism based on the linguistic tone of annual reports. Furthermore, this is among the first studies directly linking annual report linguistic tone to cash holding. The paper also provides new evidence regarding how managerial optimism affects the relationship between the firm's growth opportunities and cash holding, given that mispricing corrections are naturally uncertain.

Does Shariah compliance affect corporate cash holdings and cash adjustment dynamics? Evidence from Malaysia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Moncef Guizani ◽  
Gaafar Abdalkrim
Keyword(s):  
Positive Impact ◽  
Generalized Method Of Moments ◽  
Cash Holdings ◽  
Cash Flows ◽  
Least Square ◽  
Cash Holding ◽  
External Financing ◽  
Content Type ◽  
Listed Firms ◽  
Corporate Cash Holdings

Purpose The purpose of this paper is to investigate the effect of Shariah compliance status on corporate cash holding decision. Design/methodology/approach This study applies ordinary least square and generalized method of moments regression models for a sample of 178 Malaysian listed firms over the period 2008–2017. Findings The results show that Shariah compliance has positive impact on the level of cash reserves of firms. It is also found that Shariah-compliant (SC) firms quickly adjust their level of cash holdings toward a target level than non–Shariah-compliant (NSC) firms. These results can be explained by the restrictions imposed by Shariah rules on firms to sustain their compliance status. Further, the results reveal that SC firms are likely to hold more cash out of their cash flows. This is the expected result, as the firms operating within the ambit of Shariah rulings and regulations face external financing constraints. Practical implications This study has important implications for managers, policymakers and regulators. For managers, the study is an important reference to understand and design cash management policies by considering restrictions imposed by Shariah regulations. In particular, managers should pay more attention to periods of credit crunch and weak economic conditions in which SC firms may be exposed to greater bankruptcy risks. For policymakers and regulators, this study may be useful in assessing the effect of the restrictions imposed by Shariah law on firm’s cash holding decision. Therefore, in an effort to increase the supply of external financing available to SC firms, policymakers should encourage the issuing of Islamic financial products. Originality/value This paper focuses on SC firms where financial constraints are bound to be more stringent than for NSC firms. It explores the implications of relevant Islamic principles on corporate cash holdings.

scholarly journals Determinants of Corporate Cash Holdings: Evidence from MNCs in Pakistan

2018 ◽  
Vol 4 (1) ◽  
pp. 71-78
Author(s):  
Nadeem Ahmed Sheikh ◽  
Khawaja Khalid Mehmood ◽  
Mujtaba Kamal
Keyword(s):  
Fixed Effects ◽  
Stock Exchange ◽  
Cash Holdings ◽  
Cash Flows ◽  
Ordinary Least Squares ◽  
Capital Expenditures ◽  
Cash Holding ◽  
Working Capital ◽  
Growth Opportunities ◽  
Corporate Cash Holdings

The purpose of this article is to investigate whether firm-specific variables (i.e. size, growth opportunities, profitability, capital expenditures, leverage, dividends, cash flow and working capital) affect the cash holdings of MNCs. Moreover, to investigate whether theories relevant to cash holdings provide any justification to narrate the cash holding behavior of listed MNCs on Pakistan Stock Exchange (PSX) for the period 2006-2016. Results indicate that profitability positively impacts cash holdings. Firm size positively impacts cash holdings in pooled Ordinary Least Squares, while it negatively impacts cash holdings in the fixed effects method; however the relationship is insignificant. Leverage, growth opportunities, dividends, working capital ratio and capital expenditures are significant and negatively related to corporate cash holdings. Finally, cash flows are unrelated to cash holdings. In short, results indicate that firm-specific variables significantly affect the cash holdings of MNCs. Moreover, (+/-) coefficients of different explanatory variables indicate that theories relevant to cash holdings provide some support to explain the cash holding behavior of MNCs in an emerging economy - Pakistan.

Expansionary monetary policy and corporate investment in an emerging market

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Quoc Trung Tran
Keyword(s):  
Monetary Policy ◽  
Money Supply ◽  
Fixed Effects ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Cash Holdings ◽  
Corporate Investment ◽  
Ordinary Least Squares ◽  
Cash Holding ◽  
Content Type

Purpose The purpose of this paper is to investigate the effect of monetary loosening on corporate investment in an emerging market. Design/methodology/approach The paper begins this study by using a dynamic model to investigate the effect of monetary loosening on corporate investment. This paper uses money supply growth as a proxy for monetary loosening, as the State Bank of Vietnam relies mainly on a quantity-based policy. Next, this paper continues to analyze whether cash holdings are able to mitigate this effect. Finally, this paper examines the effect of monetary loosening on investment smoothing and the mitigating role of cash holding. The research sample includes 4,868 from 617 firms. This paper uses different regression techniques (i.e. pooled ordinary least squares clustered by firm, fixed effects, random effects and system generalized method of moments). Findings The research findings show that money supply growth is positively related to both corporate investment and investment smoothing. The effect of monetary loosening on corporate investment is mitigated by corporate cash holding. Moreover, this paper finds that the mitigating effect of cash holdings is stronger for financially constrained firms and non-state-owned enterprises. Originality/value Prior studies only focus on corporate investment under-tightening monetary policy; however, there is no research on firm investment under monetary loosening in an emerging market.

Corporate cash holdings and firm life cycle: evidence from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ajid Ur Rehman ◽  
Tanveer Ahmad ◽  
Shahzad Hussain ◽  
Shoaib Hassan
Keyword(s):  
Life Cycle ◽  
Growth Stage ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Cash Holdings ◽  
External Financing ◽  
Strategic Choices ◽  
Content Type ◽  
Firm Life Cycle ◽  
Corporate Cash Holdings

Purpose The purpose of this paper is to investigate how corporate cash holdings changes across firm life cycle and how firms undergo heterogeneous dynamic cash adjustment as they advance from one stage to the next stage. Design/methodology/approach This study uses an extensive data set of 2,994 Chinese A-listed firms. The authors use generalized method of moments (GMM) and Fisher Panel unit root testing to investigate the targeting behavior of Chinese firms. Findings The uni-variate investigation reveals that firms in the growth stage exhibits the highest cash levels and firms in the decline stage report the lowest cash levels. As growth firms have high investment needs, they may require raising external capital to meet investment needs. To avoid the costly external financing, firms in growth stage tend to hold more cash. The GMM estimation reveals that along all the phases of firm life cycle there are evidences of trade-off behavior of corporate cash holdings. The authors report that adjustment rate increases as firms enters into the growth stage. Practical implications The findings provide both theoretical and practical insight to align cash policies with the available strategic choices along firm life cycle in an emerging market characterized by market imperfections. Originality/value The study is unique from the context that it is applying robust methodology to one of rarely investigated area in corporate cash policy. The peculiar Chinese study setting characterized by higher information asymmetry, high cost of external financing and heterogeneous access to financing sources provide theoretical and empirical underpinnings to investigate and gain insight about how corporate cash policy can be aligned with strategic choices available across different stages of life cycle.

Female directors and corporate cash holdings: monitoring vs executive roles

2019 ◽  
Vol 58 (2) ◽  
pp. 295-312 ◽  
Author(s):  
Domenico Rocco Cambrea ◽  
Paolo Tenuta ◽  
Vincenzo Vastola
Keyword(s):  
Fixed Effects ◽  
Gender Diversity ◽  
Cash Holdings ◽  
Listed Companies ◽  
Management Decision ◽  
Content Type ◽  
Female Directors ◽  
Cash Reserves ◽  
The Impact ◽  
Corporate Cash Holdings

Purpose The purpose of this paper is to investigate the impact of gender diversity on corporate cash holdings by scrutinizing different positions covered by female board directors. Design/methodology/approach The paper examines a sample of Italian listed companies between 2006 and 2015. Fixed-effects regressions are employed as the base empirical methodology. In addition, because the link between corporate governance variables and cash may suffer from endogeneity issues, the study employs several tests to control for this potential problem. Findings The empirical findings demonstrate that the relationship between gender diversity and cash holdings depends on the role of female directors on the boards. Specifically, the evidence shows that women in monitoring functions, ruled by independent directors and female chairs, led to a decrease in cash reserves. Conversely, companies managed by female CEOs have larger cash holdings. Research limitations/implications The paper refers to Italian listed companies only and does not analyze whether and how the financial crisis has affected the link between female directors and cash reserves. Practical implications The study provides insights for the diverse effects of female directors on cash management decision and contributes to the debate on gender diversity capabilities for improving firm financial flexibility. Originality/value This paper is the first empirical study to attempt to disentangle the effect of gender diversity on cash holdings. It sheds light on the consequences of appointing female directors on cash policies and explores the Italian context after the introduction of the gender quotas law.

Analysis of corporate cash holdings of firms in Malaysia

2014 ◽  
Vol 8 (2) ◽  
pp. 118-135 ◽  
Author(s):  
Shaista Wasiuzzaman
Keyword(s):  
Stock Prices ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Cash Holdings ◽  
Developed Countries ◽  
Order Theory ◽  
Least Square ◽  
Pecking Order Theory ◽  
Content Type ◽  
Corporate Cash Holdings

Purpose – The purpose of this paper is to understand the motives behind the levels of cash holdings and the theory that may be able to explain why these firms hold so much cash. Design/methodology/approach – Annual financial data and stock prices of 192 firms from six different sectors on the Bursa Malaysia are collected for the period 2000-2007. Analysis using the non-parametric Kruskal–Wallis test is carried out to analyze industrial and time differences in cash holdings. The ordinary least square (OLS) regression technique is used to understand the relationships between various attributes with the level of cash holdings. Due to issues of endogeneity, the generalized method of moments method is also applied. Findings – Significant differences are found to exist in the level of cash holdings between firms and across time. It is found that firms adjust to a target level of cash holdings, although this is done relatively slowly. Also, significance of firm characteristics and their relationships with cash holdings indicate that other than the pecking order theory, the trade-off theory and the agency theory can help explain the level of cash holdings of firms in Malaysia. Originality/value – Most studies on cash holdings have been carried out in developed countries. Malaysia is an advanced emerging market with significant state control and firm structure being largely family-oriented. Hence, a study on a different market with different types of firm structures will contribute significantly to the existing literature on corporate cash holdings.

Determinants of Corporate Cash Holdings

2017 ◽  
Vol 18 (2) ◽  
pp. 416-427 ◽  
Author(s):  
Yogesh Maheshwari ◽  
K.T. Vigneswara Rao
Keyword(s):  
Panel Data ◽  
Fixed Effects ◽  
Capital Expenditure ◽  
Cash Holdings ◽  
Working Capital ◽  
Financial Policies ◽  
Panel Data Regression ◽  
Strong Positive Relationship ◽  
Development Expenditure ◽  
Corporate Cash Holdings

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 for the estimation of panel data model. This study has implications that are beneficial for the business managers to have a better understanding and appreciation of the role and importance of the determinants of corporate cash holdings in formulating and evaluating the corporate financial policies. The results of the study indicate a strong positive relationship between cash holdings and cash flow, dividend payment, market-to-book ratio, net debt issuance and net equity issuance of the sample firms. It is also found that the cash holdings of these firms are negatively affected by net working capital, leverage, research and development expenditure as well as capital expenditure of the firm. The article will help researchers as well as managers to understand as to what motivates the firms to hold cash, given the fact that despite being often termed as a non-earning asset, firms generally hold more cash than their normal working capital requirement.

scholarly journals Asymmetric targeting of corporate cash holdings and financial constraints in Pakistani firms

2019 ◽  
Vol 26 (1) ◽  
pp. 76-97
Author(s):  
Ghulam Ayehsa Siddiqua ◽  
Ajid ur Rehman ◽  
Shahzad Hussain
Keyword(s):  
High Speed ◽  
Financial Constraints ◽  
Generalized Method Of Moments ◽  
Cash Holdings ◽  
Optimal Level ◽  
Dynamic Panel Data ◽  
Asymmetric Adjustment ◽  
Content Type ◽  
Listed Firms ◽  
Target Firms

Purpose The purpose of this paper is to investigate the asymmetric adjustment of cash holdings in Pakistani firms for above and below target firms. Design/methodology/approach The study employs generalized method of moments (GMM) to investigate the adjustment of cash holdings. Findings The study found that the firms which hold cash above the optimal level of cash holdings have higher speed of adjustment than the firms which hold cash below the optimal level. Financially constrained (FC) firms also adjust their cash holdings faster than financially unconstrained (FUC) firms but high speed of downward adjustment does not remain persistent after financial constraints are controlled. Findings of this study reveal this asymmetric adjustment in above and below target firms and extend these results in FC and FUC Pakistani listed firms, respectively. Research limitations/implications The conclusion of this study has been derived under certain limitations. There is a vast space to extend this study in different dimensions. Firms operating in capital-intensive industries may provide different results for financial constraints because their policy designing would be quite different from other firms. Originality/value This study contributes to cash holdings research in Pakistan by exploring the adjustment behavior of cash holdings across Pakistani non-financial firms using econometric modeling. Downward adjustment rate is supposed to be higher than upward adjustment rate and this rate is tested using dynamic panel data model. Similarly, it is inferred that this relationship holds for above target firms even after including the financial constraints in the presented model.

scholarly journals The Effect of Optimal Cash and Deviation from Target Cash on the Firm Value: Empirical Study in Indonesian Firms

2019 ◽  
Vol 10 (1) ◽  
pp. 1-13
Author(s):  
R Heru Kristanto HC ◽  
Mamduh M Hanafi ◽  
Wayan Nuka Lantara
Keyword(s):  
Corporate Governance ◽  
Empirical Study ◽  
Firm Value ◽  
Fixed Effects ◽  
Cash Holdings ◽  
Cash Holding ◽  
Fixed Effects Model ◽  
Publicly Traded ◽  
Dynamic Panel ◽  
Panel Fixed Effects

The aim of this paper is to examine the effect of cash, optimal cash holding, deviation from target cash (the target adjustment model) on the firm value. This research uses a sample of Indonesian publicly traded firms for the period 2001-2017 (3,349 observation). This paper uses a dynamic panel fixed effects model to estimate optimal cash holdings. Hypothesis testing uses GLS fixed effect and interaction effect uses regression moderated analysis. Research finds that: first, cash, optimal cash, and deviation from target cash have an effect on the firm value. Second, corporate governance moderates the effect of cash, optimal cash, and deviation from target cash on the firm value. Third, investment positively moderates the effect of cash on the firm value. Investment negatively moderates the effect of optimal cash, deviation from target cash on the firm value. Debt negatively moderates the effect of cash, optimal cash on the firm value. Debt positively moderates the effect of deviation from target cash on the firm value. 

Does board independence moderate the effect of politician directors on CSR disclosure? Evidence from the publicly listed banks in Bangladesh

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Md. Harun Ur Rashid ◽  
Syed Zabid Hossain
Keyword(s):  
Negative Impact ◽  
Generalized Method Of Moments ◽  
Least Square ◽  
Annual Reports ◽  
Independent Directors ◽  
Board Independence ◽  
Content Type ◽  
Political Csr ◽  
Csr Disclosure

Purpose This study aims to investigate the moderating effect of independent directors on the relationship between politicians on the board and corporate social responsibility disclosure (CSRD). Design/methodology/approach The ordinary least square has been used to analyze the CSRD data collected from the annual reports of all 30 listed banks of Bangladesh covering six years period ranging from 2013–2018. Further, the study has applied the generalized method of moments to prove the robustness of the model across the endogeneity issue. Findings The study found a positive relationship between board independence and CSRD that indicates board independence enhances the CSRD to a great extent. On the contrary, the inclusion of politicians on the board has shown a negative impact on CSRD that implies the higher the presence of political members on the board of a bank, the lower the involvement of the bank in CSR activities. However, board independence positively and significantly moderates the politician directors on the CSRD. The findings imply that if the independent directors are empowered, they play the role of whistleblowers that, in turn, mitigates the negative role of politician directors to CSRD. Research limitations/implications The study suggests the banks’ management, and regulatory bodies formulate sound policies so that the banks are forced to include more independent directors with enough power and at the same time, reduce the politician directors on the board. Originality/value The study extends debate on the political CSR and CSRD through validating the role of board independence.

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