How Do Financial Constraints and Financial Crises Matter in Cash Management?

This chapter investigates how financial constraints and financial crises affect the cash policy of firms. Using a sample of 157,505 firm-years from 26 developing Asian economies from 1991 to 2016, firm fixed effects are employed to mitigate unobserved heterogeneity. Empirical findings show that financially constrained firms have higher cash than financially unconstrained firms, which is in line with the precautionary motive and transaction motive of cash. The picture changes with the rise of financial crises. While financially constrained firms have lower cash before the 1997-1998 Asian financial crisis, they increase their cash level more after the 2008-2009 global financial crisis. Overall, managers need to consider the exogenous shocks to enhance their liquidity management. Also, investors should consider the financial crises, firm size, firm constraint, and dividend payment status when determining when and where to invest.

EFFICIENCY EVALUATION OF ACTIVITY OF THE RUSSIAN PUBLIC COMPANIES IN THE CONDITIONS OF ACTIVE REGULATION OF OPERATING COSTS AND EXTERNAL EFFECTS (SHOCKS)

The author considers influences of active regulation of operating costs and negative effects (shocks) on financial policy of the Russian public companies. The Russian firms make the choice for benefit of internal financing for the purpose of increase in the corporate benefit in the conditions of external financial restrictions (sectoral sanctions). Growth of the corporate benefit leads to increment of company assets and respectively to welfare of the shareholder. The Russian public companies will review the capital structure in the conditions of growth of adjustment costs. The active policy of the Russian companies is connected with availability of sufficient size of assets which are source of mortgage providing for regulation of capital structure. Thereby, the organization solves problem of adverse selection – financing source selection taking into account its price. The companies are forced to regulate actively the capital structure in the conditions of growth of operating costs and negative shocks. Regulation of capital structure is connected with the aspiration of the company to keep part of debt for its use as financing source. Operating costs are the indicator estimating efficiency of management decisions. The Russian companies will finance the investments, first of all, by internal financing sources. Cash flows are the resource servicing the investment capital. The firms will be attracted the loan capital in the period of deficit of cash flow. The Russian companies will work in logic of precautionary motive, creating monetary stock in the conditions of shocks. The precautionary motive is the protective buffer from negative impacts from the capital markets. Low values of cash flows allow to limit the management concerning his illegal behavior – decision making in private interests.

Economic Cycle and Bank Liquidity Hoarding: Are They Procyclical or Countercyclical?

The paper empirically examines bank liquidity hoarding fluctuations over the economic cycle and provides further evidence on the heterogeneous cyclicality of bank liquidity hoarding across different banks in Vietnam for the period 2007–2019. Using both static panel models with the fixed-effects regression using corrected Driscoll-Kraay standard errors and dynamic panel models with the two-step system generalized method of moments estimator, we find that the liquidity hoarding of banks is procyclical. Concretely bank liquidity hoarding on- and off-balance sheets tends to increase during economic upturns and decrease during economic downturns. Our additional analysis yields a consistent pattern that financially weaker banks are more procyclical than their stronger counterparts. During booms and busts, the behaviour of hoarding liquidity is more pronounced for banks with smaller sizes, less capital, more risk, and less profit. This heterogeneity also contributes to understanding the core mechanism behind our main findings, further confirming the precautionary motive of bank liquidity hoarding.

Bank Liquidity Hoarding and the Financial Crisis: An Empirical Evaluation

I test and find supporting evidence for the precautionary motive hypothesis of liquidity hoarding for U.S. commercial banks during the global financial crisis. I find that banks held more liquid assets in anticipation of future losses from securities write-downs. Exposure to securities losses in their investment portfolios and expected loan losses (measured by loan loss reserves) represent key measures of banks’ on-balance sheet risks, in addition to off-balance sheet liquidity risk stemming from unused loan commitments. Furthermore, unrealized securities losses and loan loss reserves seem to better capture the risks stemming from banks’ asset management and provide supporting evidence for the precautionary nature of liquidity hoarding. Moreover, I find that more than one-fourth of the reduction in bank lending during the crisis is due to the precautionary motive.

The Impact of Money Demand Motivation on Money Supply Indonesia

This study aims to investigate the impact of money demand motive on a money supply based on keyness theory. The method used in this study is the ordinary least squares method with an annual period from 2011 to 2020. We find that In Indonesia, the money demand motive has a significant effect on money supply where the transaction motive has a significant negative relationship with the money supply. A precautionary motive has a significant positive correlation with the money supply. The motive of speculation has a significant positive relationship with the money supply.

Gold Reserves in Majority Non-Muslim Countries and Muslim Majority Countries

This study aims to analyse the priority of gold reserves compared to other reserves between non-Muslim countries with Muslim-majority countries, considering that Muslim scholars often put forward studies on gold or gold reserves, and even become a discourse on using gold as a transactional tool. The research methodology used in this study is a quantitative approach using secondary data. The results of this study indicated that non-Muslim majority countries more considering to use gold based on a reserve motive or precautionary motive for preventing risk. On the other hand, the precautionary motive has no effect on the decision of Muslim majority countries to prioritize gold as a reserve over other reserves.

Bank Liquidity and Lending Behavior: Evidence from the Vietnamese Banking System

The study investigates the impact of liquidity on lending behavior, in the form of loan growth, at Vietnamese commercial banks for the period of 2007–2017. Notably, we also explore heterogeneous effects with the support of the generalized method of moments (GMM) for the dynamic panel data models. The robust result confirmed by alternative techniques indicates that banks with more liquidity tend to expand lending more, implying the precautionary motive of liquidity storage to finance future investments. Further analysis documents that this effect seems to be stronger for state-owned banks and mitigated in the case of banks having higher capital ratios, while we find the inconclusive results for bank size. In addition to extending the existing literature, this study provides insightful implications for bank managers and policymakers in Vietnam and other emerging economies as well.

Menger and Keynes: On the demand for money and uncertainty

The aim of the article is to compare the theories of demand for money by C. Menger and J. M. Keynes. The history of economic thought states Keynes’s priority in developing a system of motives for demand for money within the framework of his theory of liquidity preference. Despite the prevailing opinion, in this article it is shown that Menger distinguished the same elements. The basic method is content analysis of Menger’s little-known works of the 1880—1890s, in which he examined the motives of demand for money for transactions, precautionary motive, and the initial outline of a speculative motive. It is important that for both authors the key factor of the precautionary motive is the equally understood uncertainty of the future, and it is this factor that determines the limited impact of increasing the supply of money on economic processes, since economic agents begin to prefer money as a durable asset compared to the investments in productive assets. In the analysis of the current macroeconomic situation, the legacy of such different authors opens up additional prospects for the formation of rethinking economic policy.

INFLUENCE OF MANAGEMENT ON DEBT CORPORATE POLICY

The author considers features of influence of finance solutions of management of the Russian public companies on debt policy. In a research are included indicators of internal growth and dividend payments by means of which it is possible to estimate corporate financial policy. Internal growth is the indicator of regulation of debt strategy, the including mechanism of precautionary motive. The dependence of the share price on the market value of assets defines installation of communication between the economic interests of shareholders and finance solutions of management. The indicator of dividend payments allows to estimate influence of external negative effects (shocks) on behavior of investors at profit assessment. Increase in dividend payments is connected with their financing from an external source. Management works in logic of precautionary motive, keeping a part of profit for further debt repayment before creditors. The management of the Russian companies not only influences the share price, but also regulates the level of a debt load. The company can use dividend payments on reinvestment of assets (as an investment resource). The author shows as the Russian public companies, solve a problem of adverse selection, switching to cheaper financing sources. The value of a debt is connected with the level of investment into the company. Pledge (property providing) is a guarantee for creditors. As, getting access to debt financing, the company provides to the creditor the complete information about property, thereby, reducing the risks connected with attraction of a debt. The Russian public companies react to changes of debt increase in value of size of assets that will be approved with recapitalization of the company (change of the capital structure due to debt increase and its use for dividend payouts to shareholders).

Monetary Economics Overview Includes Monetary Policy Instruments, Functions and Impacts

This study discusses monetary policy, the function and impact of monetary policy as well as the factors that influence the money supply. Monetary policy is a policy or regulation issued by the Central Bank which is used to manage a number of money supplies in a country to be able to create a specific purpose. The functions and impacts of monetary policy include maintaining an investment climate that occurs within the country, increasing the stability of economic growth in a country, overcoming high levels of unemployment and opening up a number of large employment opportunities, increasing the number of the balance of payments, maintaining the stability of value. the existing currency exchange is able to maintain a number of stability of the price of goods on the market. Factors that affect the amount of money circulating in society include the size of state spending, the fast and slow rate of money circulation, the motive for having cash, the transaction motive, the precautionary motive, and the speculative motive.