scholarly journals Corporate life cycle and cash holding decisions: A South African study

2020 ◽  
Vol 17 (4) ◽  
pp. 102-110
Author(s):  
Trust Chireka
Keyword(s):  
Life Cycle ◽  
South African ◽  
Firm Size ◽  
Cash Holdings ◽  
Cash Holding ◽  
Resource Based View ◽  
Life Cycle Stages ◽  
Corporate Life Cycle ◽  
Firm’S Life Cycle ◽  
Corporate Cash Holdings

The resource-based view theory suggests that as firms’ resource bases differ along the corporate life cycle, even corporate policies such as cash holdings vary along the life cycle. This study seeks to understand the effect of firm’s life cycle on corporate cash holding behavior. Previous literature has sought to investigate the firm and institutional determinants of corporate cash holdings. Using the resource-based view theory, this study investigates whether corporate life cycle can be another determinant of corporate cash holdings. A panel data analysis of a sample of 112 Johannesburg Stock Exchange (JSE) listed firms from 2011 to 2018 is utilized to determine if firm’s life cycle does influence cash holding behavior. Dickinson’s cash flow analysis is used to proxy life cycle stages and control other known determinants of corporate cash holdings such as firm size, leverage, profitability, dividend payments, and growth opportunities. Contrary to other studies, this study finds no significant relationship between life cycle stages and corporate cash holdings, suggesting that corporate cash holdings for South African firms are driven by other factors other than life cycle resource allocations. However, it is found that prior year cash balances, firm size, and profitability have significant positive relationships with cash holdings. It is also found that liquid asset substitutes, leverage, and investment opportunities exert a significant and negative influence on corporate cash holdings.

The dividend signaling hypothesis and the corporate life cycle

2020 ◽  
Vol 46 (12) ◽  
pp. 1569-1587
Author(s):  
Narcisa Meza ◽  
Anibal Báez ◽  
Javier Rodriguez ◽  
Wilfredo Toledo
Keyword(s):  
Life Cycle ◽  
Growth Stages ◽  
Content Type ◽  
Future Earnings ◽  
Life Cycle Stages ◽  
Dividend Signaling ◽  
Corporate Life Cycle ◽  
Firm’S Life Cycle ◽  
Signaling Hypothesis ◽  
The Relationship

PurposeThis paper aims to examine the relationship between the dividend signaling hypothesis and a firm's life cycle.Design/methodology/approachThe authors use Dickinson's (2011) methodology to develop a proxy for the firm's stages in its life cycle and to examine the relationship between dividends and future earnings following a nonlinear setting.FindingsUsing a sample of US firms during the 2000–2014 period, the authors find that the signaling hypothesis can be dependent on firm-specific characteristics, such as life cycle stages. The authors report that the relationship between dividend changes and subsequent earnings changes is different for different life stages. They also find that changes in the amount of the dividend provide some information about future earnings, especially during the early (introductory and growth) stages. These results are consistent with the use of earnings or return on assets as the dependent variables in models of earnings expectations.Originality/valueThe authors believe that this is the first time that the dividend signaling hypothesis has been linked to the life cycle of the firm.

Investment Committee, Corporate Cash Holdings and Corporate Life Cycle

2018 ◽  
Author(s):  
Baban Eulaiwi ◽  
Ahmed Al-Hadi ◽  
Syed Mujahid Hussain ◽  
Khamis Hamed Al-Yahyaee
Keyword(s):  
Life Cycle ◽  
Cash Holdings ◽  
Corporate Life Cycle ◽  
Corporate Cash Holdings

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.

scholarly journals Women on board, firm size and cash holding: Empirical evidence from the developing country

2021 ◽  
Vol 10 (3) ◽  
pp. 177-185
Author(s):  
Musviyanti Musviyanti ◽  
Yana Ulfah ◽  
Yanzil Azizil Yudaruddin
Keyword(s):  
Firm Size ◽  
Role Theory ◽  
Cash Holdings ◽  
Cash Holding ◽  
Corporate Boards ◽  
Corporate Board ◽  
Women On Boards ◽  
Negative Effect ◽  
And Gender ◽  
The Relationship

Effective corporate board supervision might be a viable solution to the agency problem of excessive cash holdings (Fama & Jensen, 1983). Thus, this study aims to examine how the participation of women on corporate boards affects cash management. The study looks at how the size of a company affects the relationship between female board members and cash holdings, especially at high and low cash holding levels. A total of 373 publicly-listed companies in seven industries from 2008 to 2017 were chosen as research samples using purposeful sampling. Furthermore, static panel data processing was also used. The results showed that women on boards had a favorable and important impact. This study discovered a positive and significant WOB (women on board) coefficient, implying that companies with women on board had relatively more cash on hand. This result supports the trade-off and gender role theory predictions. However, the relationship between firm size and cash keeping is negative, but insignificant for all models. Different impacts were discovered by separating a sub-sample of companies with high and low cash holding rates. Women on the board of companies with large cash holding have a significant negative effect on cash holding. The partnership between women on boards and cash holding yielded negligible results. These findings have implications for regulators and corporate decision-makers in terms of board gender equality.

scholarly journals Corporate Life Cycle and the Explanatory Power of Risk Measures versus Performance Measures

2011 ◽  
Vol 2 (6) ◽  
pp. 199-206 ◽  
Author(s):  
Hamed Omrani ◽  
Saber Samadi . ◽  
Ahmad Kazemi Margavi . ◽  
Hamid Asadzadeh . ◽  
Hemad Nazari .
Keyword(s):  
Life Cycle ◽  
Performance Measures ◽  
Regression Models ◽  
Stock Exchange ◽  
Risk Measures ◽  
Explanatory Power ◽  
Financial Information ◽  
Mature Stage ◽  
Life Cycle Stages ◽  
Corporate Life Cycle

The major aim of this paper is to compare the explanatory power of risk measures versus performance measures in different life-cycle stages. To test the hypotheses, first, sample firms were classified into three life-cycle stages (Growth, Mature and Decline). Then, using regression models and Vuong's Z-statistic, the hypotheses were investigated. In this study, financial information of 75 firms which were accepted at Tehran’s Stock Exchange (TSE) from 2003 to 2008 (450 firm-years) was examined. The results of this study show that in growth and decline stages, the explanatory power of risk measures is significantly higher than performance measures and in mature stage, the opposite is true.

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 Governance and the corporate life-cycle

2015 ◽  
Vol 11 (1) ◽  
pp. 23-43 ◽  
Author(s):  
Thomas O'Connor ◽  
Julie Byrne
Keyword(s):  
Corporate Governance ◽  
Life Cycle ◽  
Prediction Model ◽  
Design Methodology ◽  
Emerging Market ◽  
Content Type ◽  
Emerging Market Countries ◽  
Life Cycle Stages ◽  
Corporate Life Cycle ◽  
Resource Strategy

Purpose – The purpose of this paper is to examine whether corporate governance changes along the corporate life-cycle. Design/methodology/approach – In a sample of 205 firms from 21 emerging market countries and using a life-cycle proxy from the dividends literature, the authors use a governance-prediction model which examines whether corporate governance differs along the corporate life-cycle. Findings – Mature firms tend to practice better overall corporate governance. Discipline and independence improve as firms mature. Firms tend to be most transparent and accountable when they are young. These findings suggest that the resource/strategy and monitoring/control governance functions are relevant but at different life-cycle stages. Research limitations/implications – In the absence of longitudinal governance data with sufficient coverage to track within-firm changes in corporate governance along the corporate life-cycle, the authors analyze differences in corporate governance between-firms at different life-cycle stages. Originality/value – The authors use an alternative, yet new measure from the dividends literature to account for the firm’s position along the corporate life-cycle. With this new measure, the findings are in line with the predictions of Filatotchev et al. (2006).

The Corporate Life Cycle and the Cost of Equity

2019 ◽  
Vol 14 (1) ◽  
Author(s):  
Sergio Bravo
Keyword(s):  
Life Cycle ◽  
Cash Flow ◽  
Cost Of Capital ◽  
Theory And Practice ◽  
Cost Of Equity ◽  
Firm Life Cycle ◽  
Link Type ◽  
Life Cycle Stages ◽  
Corporate Life Cycle ◽  
The Cost

Abstract A widely used methodology for estimating the beta of companies with the Capital Asset Pricing Model (CAPM) uses comparable firms based only on industry or sector classifications (Bancel, F., and U. R. Mittoo. 2014. “The Gap between the Theory and Practice of Corporate Valuation: Survey of European Experts.” Journal of Applied Corporate Finance 26, no. 4 (Fall): 106–17. doi:https://doi.org/10.1111/jacf.12095, 112; KPMG. 2017. “Cost of Capital Study 2017: Diverging Markets, Converging Business Models.” Accessed September 28, 2018. https://assets.kpmg.com/content/dam/kpmg/ch/pdf/cost-of-capital-study-2017-en.pdf, 37). We hypothesize that even within industries, there is a significant relationship between the cost of equity and the life cycle of a firm. We argue that these variables are correlated because different life-cycle stages exhibit different degrees of systematic risk. Therefore, as the firm moves along its life cycle, its unlevered beta decreases. We define the stages of the firm life cycle based on a modification of the theoretical typology of (Miller, D., and P. Friesen. 1984. “A Longitudinal Study of the Corporate Life-Cycle.” Management Sciences 30 (10): 1161–83. http://www.jstor.org/stable/2631384, 1162–3) and then classify a sample of listed companies into these stages using (Dickinson, V. 2011. “Cash Flow Patterns as a Proxy for Firm Life-Cycle.” The Accounting Review 86 (6): 1969–94. doi:https://doi.org/10.2308/accr-10130) cash flow statements methodology. We construct value-weighted portfolios that are formed based on our life-cycle stages classification, adapting the procedure of (Fama, E., and K. R. French. 1993. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33 (1): 3–56. doi:https://doi.org/10.1016/0304-405X(93)90023-5). Finally, we compare the betas (levered and unlevered) of these portfolios to determine whether there are statistically significant differences. Our results show clear evidence of a relationship between betas and the corporate life cycle and that this relationship is robust to both changes in the period of analysis and omitted variables bias (when controlling with the four-factor model of (Carhart, M. M. 1997. “On Persistence in Mutual Fund Performance.” The Journal of Finance 52 (1): 57–82. doi:https://doi.org/10.1111/j.1540-6261.1997.tb03808.x). We believe our results show an important shortcoming in a widely used methodology among practitioners for estimating the CAPM.

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.

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