scholarly journals Allocation of internally generated corporate cash flow in Africa

2018 ◽  
Vol 8 (4) ◽  
pp. 495-513 ◽  
Author(s):  
Henry Agyei-Boapeah ◽  
Michael Machokoto
Keyword(s):  
Cash Flow ◽  
Capital Markets ◽  
Capital Expenditure ◽  
Theory Development ◽  
Cash Flows ◽  
Ordinary Least Squares ◽  
Equity Capital ◽  
Content Type ◽  
Dividend Payments ◽  
The Right

Purpose The purpose of this paper is to examine how managers of African firms, operating in environments characterised by less developed capital markets and weak institutional structures, make use of their internally generated cash flows. Design/methodology/approach The authors use a panel data methodology which regresses a particular use of cash flow (e.g. capital expenditure) on the internally generated operating cash flow of a firm and a set of control variables. The estimation of the regression model is done by ordinary least squares regressions. For robustness, the authors also estimate the models using system generalised method of moments to control for endogeneity and measurement error problems. Findings The authors find that managers of African firms hold most of their internally generated cash flows, and when they decide to spend, they allocate a higher proportion towards dividend payments; followed by debt adjustments; then to investments; and lastly, to equity repurchases. Research limitations/implications The findings are consistent with the existence of a significant financial constraint in African markets, and the use of dividends to signal credit quality in relatively underdeveloped capital markets. Originality/value The authors provide a more extensive analysis of how a firm spends a unit of the incremental cash flow it generates. In particular, the analysis shows that beyond investments in capital expenditure, other cash flow uses (i.e. cash holdings, dividend payments, and adjustments in debt and equity capital) which have been largely overlooked in the literature are important to understanding the effects of financial constraints on corporate decisions. Also, the early empirical evidence on the cash flow allocations of African firms could be a step in the right direction in informing theory development in this area.

Understanding the connection between SMEs’ competitiveness and cash flow generation: an empirical analysis from Hungary

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Gabor Markus ◽  
Andras Rideg
Keyword(s):  
Financial Performance ◽  
Cash Flow ◽  
Explanatory Power ◽  
Cash Flows ◽  
Ordinary Least Squares ◽  
Competitive Performance ◽  
Content Type ◽  
The Past ◽  
Wide Range ◽  
The Future

Purpose The purpose of this paper is to interconnect the firm level competitive performance (competitiveness) to the financial performance of the firms. The goal is to give evidence on how successful small- and medium-sized enterprises (SMEs) use their financial performance to support their competitive performance. Design/methodology/approach Competitiveness is interpreted and measured through the resource-based view theory on a wide range of competitiveness measurements with a sample size of 639 SMEs. Financial data originate from official, publicly accessible governmental archives. All data are from a mid-size Central European country (Hungary). To interconnect competitiveness and financial performance, this paper recognizes two types of cash flow, namely, cash flow to the “past” (dividend and debt service) and cash flow to the “future” (CAPEX and innovation). This paper used ordinary least squares regression and binomial logistic regression to analyze connections. Findings Cash flows to the “future” have much stronger effects on competitiveness than cash flows to the “past.” Debt services do not affect competitiveness, whereas dividends, CAPEX and innovation efforts have a significant positive connection to competitiveness, showing that higher cash flow indicates higher competitive performance. If this paper knows how much the firm spends on innovation and dividends, in about the four-fifths of the cases, this paper can predict the level of the competitiveness of the firm without any additional information. The level of these variables gives enough information, the variability of them is not relevant. Research limitations/implications The explanatory power of future-oriented cash flow elements is much higher than that of the past-oriented ones, while innovation dominates all models. Firms with higher competitiveness build their returns in their cost structure, and only when the financial position of the firm is stable enough, withdraw the financial resource based on a long-term plan. The results are limited by the fact that using the current sample, detailed and representative (e.g. cross-industrial, spatial, etc.) decomposition is not possible. Originality/value Literature is focusing on how SMEs reach success, how SMEs “earn money.” There is no evidence on how SMEs “spend money,” earned during their success.

scholarly journals Simulation evidence on the properties of alternative measures of working capital accruals

2017 ◽  
Vol 25 (4) ◽  
pp. 378-394
Author(s):  
Javad Izadi Zadeh Darjezi ◽  
Homagni Choudhury ◽  
Alireza Nazarian
Keyword(s):  
Cash Flow ◽  
Estimation Error ◽  
Explanatory Power ◽  
Cash Flows ◽  
Working Capital ◽  
Accrual Quality ◽  
Content Type ◽  
Explanatory Variables ◽  
Study Results ◽  
The Uk

Purpose This paper aims to investigate the specification and power of tests based on the DD and modified DD model through the UK data between years 2000 and 2013, and make comparisons with tests using working capital accruals creating a measure of accruals quality as the standard deviation of the residuals value from firm-specific regressions base on working capital accruals on last, current and one-year-ahead cash flows from operations. Design/methodology/approach This study focuses both on the DD model and modified DD model to find out which of them can more accurately capture total working capital accrual estimation error and accrual quality. According to the DD model, the past, current and future net cash from operating activities as the three years’ operating cash inflows or outflows become omitted and correlated variables. In this study, the authors continue to document residuals from the DD and MDD models to demonstrate properties that are more consistent with behaviours of accruals estimation errors. Therefore, in this study, the authors are looking to compare the results from both the MDD and DD models and find which one of them is more effective in explaining the working capital accruals in the UK. Findings The authors find that adding additional explanatory variables may add additional explanatory power of variables to the DD model and extent to which accruals map into cash flow insights based on the UK data. This study is empirically well fitting with the internal workings of cash flows. As investors fixate only on the accounting earnings, they may fail to reflect fully on information contained within cash flow components and working capital accruals of current and future earnings. Originality/value The authors compare different equation to cover more items of working capital accruals. In addition, after examining earnings and accrual quality, the findings show that the average UK company behaviour was quite similar to the behaviour that was founded earlier for both models in the USA. Furthermore, this study results show that more volatility of sales, cash flow, accruals and earnings make a lower accrual quality. The results demonstrate that both models can capture the power to predict working capital accruals. Moreover, we find that adding additional explanatory variable of employee growth rate adds additional explanatory variables to DD model.

Corporate cash flow and dividends smoothing: a panel data analysis at Bursa Malaysia

2015 ◽  
Vol 13 (1) ◽  
pp. 2-19 ◽  
Author(s):  
Apedzan Emmanuel Kighir ◽  
Normah Haji Omar ◽  
Norhayati Mohamed
Keyword(s):  
Panel Data ◽  
Cash Flow ◽  
Panel Data Analysis ◽  
Generalized Method Of Moments ◽  
Cash Flows ◽  
Payout Policy ◽  
Free Cash Flow ◽  
Content Type ◽  
Financial Firms ◽  
The Impact

Purpose – The purpose of this paper is to contribute to the debate and find out the impact of cash flow on changes in dividend payout decisions among non-financial firms quoted at Bursa Malaysia as compared to earnings. There has been renewed debate in recent finance and accounting literature concerning the key determinants of changes in dividends payout policy decisions in some jurisdictions. The conclusion in some is that firms base their dividend decisions on cash flows rather than published earnings. Design/methodology/approach – The research made use of panel data from 1999 to 2012 at Bursa Malaysia, using generalized method of moments as the main method of analysis. Findings – The research finds that Malaysia non-financial firms consider current earnings more important than current cash flow while making dividends payout decisions, and prior year cash flows are considered more important in dividends decisions than prior year earnings. We also found support for Jensen (1986) in Malaysia on agency theory, that managers of firms pay dividends from free cash flow to reduce agency conflicts. Practical implications – The research concludes that Malaysian non-financial firms use current earnings and less of current cash flow in making changes in dividends policy. The policy implication is that current earnings are dividends smoothing agents, and the more they are considered in dividends payout decisions, the less of dividends smoothing. Social implications – If dividends smoothing is encouraged, it could lead to dividends-based earnings management. Originality/value – The research is our novel contribution of assisting investors and government in making informed decisions regarding dividends policy in Malaysia.

The determinants of corporate cash holdings: evidence from Shariah-compliant and non-Shariah-compliant corporations

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Faisal Alnori ◽  
Abdullah Bugshan ◽  
Walid Bakry
Keyword(s):  
Cash Flow ◽  
Capital Expenditure ◽  
Cash Holdings ◽  
Order Theory ◽  
Working Capital ◽  
Pecking Order Theory ◽  
Content Type ◽  
Financial Firms ◽  
Operating Cash Flow ◽  
The Difference

PurposeThe purpose of this study is to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms, for non-financial corporations in the Gulf Cooperation Council (GCC).Design/methodology/approachThe data include all non-financial firms listed in six GCC markets over a period 2005–2019. The IdealRatings database is used to identify Shariah-compliant firms in the GCC. To examine the determinants of cash holdings, a static model is used. To confirm the applicability of the method applied, the Breusch–Pagan Lagrange Multiplier (LM) and Hausman (1978) are used to choose the most efficient and consistent static panel regression.FindingsThe results show that, for Shariah-compliant firms, the relevant determinants of cash holdings are leverage, profitability, capital expenditure, net working capital and operating cash flow. For non-Shariah-compliant firms, the only relevant determinants of cash holdings are leverage, net working capital and operating cash flow. The findings suggest that the cash holding decisions of Shariah-compliant firms can be best explained using the pecking order theory. This reveals that Shariah-compliant firms use liquid assets as their first financing option, due to the Shariah regulations.Research limitations/implicationsFuture studies may investigate the optimal levels of cash holdings and compare the adjustment speeds toward target cash holdings of both the Shariah-compliant firms and their conventional counterparts.Originality/valueThis study is the first to investigate the difference between the determinants of cash holdings of Shariah-compliant and non-Shariah-compliant firms.

Financial sustainability in Italian farms: an analysis of the FADN sample

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Gabriele Dono ◽  
Rebecca Buttinelli ◽  
Raffaele Cortignani
Keyword(s):  
Rural Development ◽  
Cash Flow ◽  
Production Systems ◽  
Public Support ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Financial Sustainability ◽  
Content Type ◽  
Random Effects Models ◽  
Financial Variables

PurposeThe paper examines the factors that influence the production of cash flows in a sample of Italian farm accountancy data network (FADN) farms to generate information useful for calibrating policies to support farmers' investments.Design/methodology/approachAn econometric analysis on the sample estimates the influence of structural, economic, commercial and financial variables on CAFFE, i.e. the cash flow that includes the payments to the farmer's resources and the free cash flow on equity (FCFE). The econometric problem of endogeneity is treated by adopting the Hausman test to choose between fixed and random effects models. The results for Italian agriculture and its types of farming (TFs) are examined based on the FCFE/capital depreciation ratio, where FCFE subtracts from CAFFE the opportunity cost payments to the farmer's resources. This ratio identifies TFs with problems of sustainability of the production system.FindingsThe results show that increasing the productive dimension, in particular the endowment of farmland and working capital, is still essential to stimulate the production of cash flows of Italian agriculture. Without this growth, increasing the depreciable capital base is ineffective. FCFE does not compensate for depreciation in several TFs, which in various cases could also improve by improving economic efficiency and commercial position.Research limitations/implicationsAssessing the factors that most influence cash flows can help to better calibrate rural development measures to the territories and farming types that most need public support. Our analysis procedure can be applied to all production systems equipped with farm accounting networks; however, the criteria for rewarding farmer resources and calculating the replacement value of agricultural capital need to be better discussed.Originality/valueThe specification of rural development policies rarely takes into account the financial sustainability conditions of farms, as well as the factors that determine them, in defining the support parameters and the selection criteria for funding. Our approach, based on the analysis of FADN data, considers these aspects and provides ideas for better calibrating public support for investments among agricultural territories, sectors and types of farms.

scholarly journals Cash flow disaggregation and prediction of cash flow

2017 ◽  
Vol 18 (4) ◽  
pp. 464-479 ◽  
Author(s):  
Ehsan Khansalar ◽  
Mohammad Namazi
Keyword(s):  
Cash Flow ◽  
Balance Sheet ◽  
Cash Flows ◽  
Prediction Errors ◽  
Content Type ◽  
Balance Sheets ◽  
Income Statement ◽  
Aggregated Model ◽  
Flow Components ◽  
Future Cash Flows

Purpose The purpose of this paper is to investigate the incremental information content of estimates of cash flow components in predicting future cash flows. Design/methodology/approach The authors examine whether the models incorporating components of operating cash flow from income statements and balance sheets using the direct method are associated with smaller prediction errors than the models incorporating core and non-core cash flow. Findings Using data from US and UK firms and multiple regression analysis, the authors find that around 60 per cent of a current year’s cash flow will persist into the next period’s cash flows, and that income statement and balance sheet variables persist similarly. The explanatory power and predictive ability of disaggregated cash flow models are superior to that of an aggregated model, and further disaggregating previously applied core and non-core cash flows provides incremental information about income statement and balance sheet items that enhances prediction of future cash flows. Disaggregated models and their components produce lower out-of-sample prediction errors than an aggregated model. Research limitations/implications This study improves our appreciation of the behaviour of cash flow components and confirms the need for detailed cash flow information in accordance with the articulation of financial statements. Practical implications The findings are relevant to investors and analysts in predicting future cash flows and to regulators with respect to disclosure requirements and recommendations. Social implications The findings are also relevant to financial statement users interested in better predicting a firm’s future cash flows and thereby, its firm’s value. Originality/value This paper contributes to the existing literature by further disaggregating cash flow items into their underlying items from income statements and balance sheets.

The impact of cash flow volatility on firm leverage and debt maturity structure: evidence from China

2018 ◽  
Vol 8 (1) ◽  
pp. 69-91 ◽  
Author(s):  
Zulfiqar Ali Memon ◽  
Yan Chen ◽  
Muhammad Zubair Tauni ◽  
Hashmat Ali
Keyword(s):  
Standard Deviation ◽  
Cash Flow ◽  
Cash Flows ◽  
Debt Maturity ◽  
Percent Reduction ◽  
Content Type ◽  
Debt Maturity Structure ◽  
Maturity Structure ◽  
Cash Flow Volatility

Purpose The purpose of this paper is to investigate the influence of cash flow volatility on firm’s leverage levels. It also analyzes how cash flow volatility influences the debt maturity structure for the Chinese listed firms. Design/methodology/approach The authors construct the measure for cash flow variability as five-year rolling standard deviation of the cash flow from operations. The authors use generalized linear model approach to determine the effect of volatility on leverage. In addition, the authors design a categorical debt maturity variable and assign categories depending upon firm’s usage of debt at various maturity levels. The authors apply Ordered Probit regression to analyze how volatility affects firm’s debt maturity structure. The authors lag volatility and other independent variables in the estimation models so as to eliminate any possible endogeneity problems. Finally, the authors execute various techniques for verifying the robustness of the main findings. Findings The authors provide evidence that higher volatility of cash flows results in lower leverage levels, while the sub-sampling analysis reveals that there is no such inverse association in the case of Chinese state-owned enterprises. The authors also provide novel findings that irrespective of the ownership structure, firms facing high volatility choose debt of relatively shorter maturities and vice versa. Overall, a rise of one standard deviation in volatility causes 8.89 percent reduction in long-term market leverage ratio and 26.62 percent reduction in the likelihood of issuing debentures or long-term notes. Research limitations/implications This study advocates that cash flow volatility is an essential factor for determining both the debt levels and firm’s term-to-maturity structure. The findings of this study can be helpful for the financial managers in maintaining optimal leverage and debt maturity structure, for lenders in reducing their risk of non-performing loans and for investors in their decision-making process. Originality/value Existing empirical literature regarding the influence of variability of cash flows on leverage and debt maturity structure is inconclusive. Moreover, prior research studies mainly focus only on the developed countries. No previous comprehensive study exists so far for Chinese firms in this regard. This paper endeavors to fulfill this research gap by furnishing novel findings in the context of atypical and distinctive institutional setup of Chinese firms.

The effect of auditor industry specialization and board independence on the cash flow reporting classification choices under IFRS: evidence from Taiwan

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shuling Chiang ◽  
Gary Kleinman ◽  
Picheng Lee
Keyword(s):  
Cash Flow ◽  
Financial Reporting ◽  
Negative Relationship ◽  
Cash Flows ◽  
Board Independence ◽  
Firm Level ◽  
Industry Specialization ◽  
Content Type ◽  
Auditor Industry Specialization ◽  
Board Of Director

Purpose This study aims to explore the relationship between audit partner and firm industry specialization and board of director independence on the decision by Taiwanese firms to use International Financial Reporting Standards (IFRS) flexibility concerning reporting interest income and expense and dividends received in different sections of the statement of cash flows. This flexibility existed in Taiwan for the first time in 2013, the year that Taiwan switched from its own generally accepted accounting principle to IFRS. Design/methodology/approach Using 2013 data for a sample of 1,227 firms, 354 of whom changed their reporting classification, this study examined the interaction effect of board independence and partner-level and firm-level auditor industry specialization on the cash flow reporting decision using logistic regression. Findings The results show there is a substitute relationship between board independence and partner-level industry specialization on the change in cash flow reporting classification, but a complementary relationship between board independence and firm-level auditor specialization. Further, both partner-level and firm-level auditor industry specializations have a complementary (but negative) relationship with board independence as to whether the firm is likely to report interest expense paid in the operating or financing activities sections. Practical implications An important implication is that knowing the levels of audit firm and partner specialization and how independent the board is, is useful for researchers and regulators in investigating auditor-client relationships and understanding the influences of variables investigated here on the outcome(s) of accounting policy and regulatory changes. Originality/value This study improved the field’s understanding of the impacts of audit partner and firm specialization, board independence and relevant interactions on cash flow reporting choices.

Does good corporate governance constrain cash flow manipulation? Evidence from India

2016 ◽  
Vol 42 (11) ◽  
pp. 1034-1053 ◽  
Author(s):  
Neerav Nagar ◽  
Mehul Raithatha
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Performance Indicator ◽  
Emerging Market ◽  
Cash Flows ◽  
Indian Government ◽  
Firm Level ◽  
Content Type ◽  
Good Corporate Governance ◽  
Flow Manipulation

Purpose The purpose of this paper is to examine whether firm-level corporate governance measures and regulatory reforms constrain manipulation of operating cash flows, an important firm performance indicator. Design/methodology/approach The sample comprises firms from an emerging market, India, with data from 2005 to 2011. The authors use the methodology given in the paper by Lee (2012) and multiple regressions. Findings The authors find that cash flow manipulation is likely to increase with an increase in the controlling ownership. Furthermore, board diligence and better audit fail to curb such manipulation. However, the authors do find that such manipulation has gone down in the recent years, and diligent boards constrain it, possibly due to the recent steps taken by the Indian Government for improving the corporate governance environment in India. Practical implications The findings can act as feedback for the regulators and policy makers. Potential investors and analysts may also benefit from the study, since they can be more vigilant about the firms’ cash flow manipulation practices and can demand better governance. Originality/value The findings suggest that good corporate governance makes managers substitute earnings management with cash flow manipulation.

scholarly journals ANALISIS RASIO ARUS KAS UNTUK MENGUKUR KINERJA KEUANGAN PADA PT KALBE FARMA Tbk.

2018 ◽  
Author(s):  
Meldawati ◽  
Febryandhie Ananda
Keyword(s):  
Cash Flow ◽  
Capital Expenditure ◽  
Secondary Data ◽  
Analytical Techniques ◽  
Cash Flows ◽  
Position Statement ◽  
Free Cash Flow ◽  
Coverage Ratio ◽  
Income Statement ◽  
Statement Of Cash Flows

This study aims to determine how the use of analytical techniques in the current ratios measure the financial performance of PT Kalbe Farma Tbk. In this study the authors use secondary data from financial statements of PT Kalbe Farma Tbk for 5 years (2008-2012). The analytical method used is a form where the ratio of the value in the statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows into the simplified ratios. Data were analyzed using 8 cash flow ratio is the ratio of operating cash flow, cash flow coverage ratio, interest coverage ratio of the cash, the cash coverage ratio of current liabilities, capital expenditure ratio, the ratio of total debt, the ratio of net cash flow and free cash flow adequacy ratio. The results of this study indicate each cash flow ratios from 2008 to 2012 average ratio produced tends to be low and has decreased every year

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