Cash management strategies and firm financial performance

Cash(liquidity) management is at the heart of a firm’s financial management. It is a silver lining between the bankruptcy and the success story of a company. Therefore, this study intends to contribute some insights into cash management practices and how firms can use them to achieve sound financial performance. This study provides a comprehensive literature review on existing theories and cash management practices that are useful in decision making. After the analysis of the available literature, the study highlights important theories including trade-off theory (TOT), transaction model, precautionary measures, financial hierarchy, and cash flow theory. Furthermore, management practices such as stochastic cash management model, speeding up cash collections, centralization & decentralization of management, asset portfolio diversification, and cash disbursement are discussed. The study suggests that a sound financial performance can be achieved through a hybrid approach and through adaptation and embracing innovations in cash management systems.

Evolving Strategies for the Structuring of Working Capital Loans during Covid Times: An Analysis of Select Indian Private Sector Banks

Predicting human behavior is a difficult task, yet bankers perform this regularly while sanctioning working capital loans, so that money advanced is recoverable. For this, they try to assess credit worthiness of clients based on past performance through financials and banking habits amongst other parameters. Clients also look at fees and instalment burden, duration of loan, etc. However, with the adverse impact of Covid pandemic on earning capacities, banks need to relook at the way they structure loans. This study suggests that customer-focused, risk-adjusted analysis should be undertaken to reduce non-performing assets and improve asset portfolio quality of banks.

THE IMPORTANCE OF SUSTAINABILITY IMPLEMENTATION FOR BUSINESS CORPORATIONS

Sustainability is the current trend adopted by major business corporations in Malaysia. Abundant evidence reveals corporations are now recognizing that aligning business operation with sustainable ways adds more value. Previous literature shows sustainability has become a strategic imperative for all businesses. Apart from that, having a sustainable building in their asset portfolio contributes towards achieving the management strategic corporate goals. Therefore, this research aims to discuss what are the corporate goals or corporate expectations from going green. In conjunction with that, secondary data collection was thoroughly reviewed from previous studies. Then, primary data consolidates via questionnaire distribution on 117 persons directly involved in green management. The data then analyzed via relative importance index (RII) to identify the importance level for expected corporate goals. Derivation of deeper conceptual findings uses the sustainable triple bottom line theory as a guide. The result indicates four major goals of corporations including the environment, maximization of economic value, and minimization of economic and social costs. This research provides ample evidence for further research in green management.

Implementation of a Commitment Machine for an Adaptive and Robust Expected Shortfall Estimation

This study proposes a metaheuristic for the selection of models among different Expected Shortfall (ES) estimation methods. The proposed approach, denominated “Commitment Machine” (CM), has a strong focus on assets cross-correlation and allows to measure adaptively the ES, dynamically evaluating which is the most performing method through the minimization of a loss function. The CM algorithm compares four different ES estimation techniques which all take into account the interaction effects among assets: a Bayesian Vector autoregressive model, Stochastic Differential Equation (SDE) numerical schemes with Exponential Weighted Moving Average (EWMA), a Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) volatility model and a hybrid method that integrates Dynamic Recurrent Neural Networks together with a Monte Carlo approach. The integration of traditional Monte Carlo approaches with Machine Learning technologies and the heterogeneity of dynamically selected methodologies lead to an improved estimation of the ES. The study describes the techniques adopted by the CM and the logic behind model selection; moreover, it provides a market application case of the proposed metaheuristic, by simulating an equally weighted multi-asset portfolio.

An Empirical Analysis on the Stable Return of Resident Funds

This paper mainly studies how investors invest in funds to obtain high returns while avoiding risks. Firstly, from the perspective of portfolio investment, this paper introduces the traditional Markowitz mean-variance model and capital asset pricing model (CAPM), then selects four funds from different industries by MATLAB program in Sina Finance and Economics Network for application analysis from which the optimal portfolio point can be obtained under the combination of efficient frontier and capital allocation line. Subsequently, by analyzing the returns of long-term holdings and short-term operations of Noan Growth Hybrid Fund, it is confirmed that long-term holding funds can better cope with the changing market so as to obtain more stable returns. Finally, this paper discusses the dynamic adjustments of asset portfolio. Resident investors are supposed to take into account the market situation and the changes of the fund itself to adjust the holding fund portfolio. Based on the research in this paper, resident investors ought to combine investment funds to diversify risk allocation and make long-term holding plans according to their risk tolerance. At the same time, they should also make appropriate dynamic adjustments when the external environment changes to ensure long-term benefits.

Volatility Decay and Diversification Role of Timberland as the Investment Horizon Lengthens

Under the mean-variance efficiency framework, we investigate the role of timberland asset in a mixed-asset portfolio in the United States. Starting from a single period (quarterly) view, we first reveal the crucial role of serial correlation in defining an asset’s financial performance. Accordingly, we modify return, volatility, and correlation for multiyear horizons to account for the nature of long-term investments. Our results show that, although timberland is persistent in all portfolios, private-equity timberland can be substituted by other liquid assets, including public-equity timberland, as the lengthening holding period substantially reduces their volatilities. We conclude that private-equity timberland is a risk diversifier regardless of the length of the investment horizon, whereas public-equity timberland becomes a suitable diversifier only for long-term investors with high risk tolerance. Study Implications: Serial correlation influences an asset’s return, risk, and correlation with other assets as the investment horizon lengthens. Volatilities of large-cap stocks and public timber real estate investment trusts decay significantly when the holding period is longer than three years. Therefore, these liquid assets become more efficient in the long run. Regardless of the length of the investment horizon, private-equity timberland acts as a risk diversifier in a mixed-asset portfolio, whereas public-equity timberland is a suitable diversifier only for high risk, long-term investors.

The impact of long-term riskless asset on ensuring liquidity and preventing banking fragility

PurposeThrough portfolio diversification, the author identifies the risk sharing deposit contract in a three-period model that maximizes the ex ante expected utility of depositors.Design/methodology/approachIn this paper, the author extends the study by Allen and Gale (1998) by adding a long-term riskless investment opportunity to the original portfolio of a short-term liquid asset and a long-term risky illiquid asset.FindingsUnlike Allen and Gale, there are no information-based bank runs in equilibrium. In addition, the model can improve consumers' welfare over the Allen and Gale model. The author also shows that the bank will choose to liquidate the cheaper investments, in terms of the gain-loss ratios for the two types of existing long-term assets, when there is liquidity shortage in some cases. Such a policy reduces the liquidation cost and enables the bank to meet the outstanding liability to depositors without large liquidation losses.Originality/valueThe author believe that the reader would be interested in this article because it is relevant to real world where depositors rush to withdraw their deposits from a bank if there is negative information about future prospect of the bank asset portfolio and bank investment. Economists and financial analysts need to determine the suitable mechanism to improve the stability of the bank and the depositor welfare.

IMPACT OF NON-PERFORMING LOANS ON SMALLER US BANK PROFITABILITY AND VALUE IN THE POST-CRISIS PERIOD

Credit quality is an important constituent of a bank’s asset portfolio. Asset quality and inadequate capital reserves were two significant triggers of the Global Financial Crisis (GFC) in 2009. Since then, there has been substantial regulatory and internal risk management changes within the US banking industry. There are no previous specific studies on smaller US banks. This study reviews the empirical literature on the topic of asset quality, bank profitability and market value along with statistics specific to the US banking industry. The impact on profitability is assessed through the return on equity ratio (ROE) and the impact on market value is assessed through the market to book ratio (MTBR). Along with the non-performing loan ratio (NPL), three other CAMEL ratios were also used as independent variables: capital adequacy (TRWCA), liquidity (LIQ) and management efficiency (MAN) to assess their impact on profitability and market value. Panel data has been collected for fifteen smaller US banks and the Generalised Method of Moments (GMM) of estimation is used robustly to estimate the effects of CAMEL ratios on bank profitability and market value. The link between NPL and other ratios on bank profitability and market value in smaller US banks has been assessed. The importance of the NPL ratio for bank profitability and market value is once again confirmed.

Investors’ expectations around quantitative easing: does liquidity injection affect European banks equally?

The role of liquidity in the banking industry is increasingly under the spotlight since the Global Financial Crisis (GFC) in 2007. Prior evidence offers contrasting findings on the role played by liquidity in banks: whilst it ensures systemic financial stability, at the same time it raises agency costs. Notwithstanding this, European banks benefited from a generous liquidity injection following the launch of the Quantitative Easing (QE) programme by the European Central Bank (ECB) in 2015–2016. We leverage on the release of the QE and investigate whether investors’ reactions to the announcements of new liquidity injections vary according to bank-level characteristics of the European banks: namely, their financial soundness, asset portfolio quality and the level of transparency. Our findings document an overall negative market reaction to the QE announcements; at a more fine-grained level of analysis we highlight that banks falling short of the regulatory requirements are not expected to benefit from additional liquidity. This study contributes to the literature on the role of liquidity in banks by showing important boundary conditions to the beneficial role of liquidity in banks, that is—because of the regulatory capital requirements—liquidity is only valuable to investors if it can be reinvested once constraints are overcome.