Default probability for the Jordanian companies: A test of cash flow theory

Abstract
This paper aims to investigate the effect of cash flow and free cash flow on corporate failure in the emerging market in particular Jordan using two samples; matched sample and a cross sectional time-series (panel data) sample representative of 167 Jordanian companies in 1989-2003. LOGIT models are used to outline the relationship between firms’ financial health and the probability of default. Our results show that there is firm’s free cash flow increases corporate failure. The result also shows that the firm’s cash flow decreases corporate failure. Firms’ capital structures are fund a mental in predicting default. Capital structure is seen as the main factor affecting the probability of default as it affects a firm’s ability to access external sources of funds. Jordanian firms depend on short-term debt for both short and long term financing.

Cash flow sensitivities and the allocation of internal cash flow

We study how firms allocate cash flow by estimating the cash-flow sensitivities of various uses of cash flow.We decompose cash flow into a transitory and a permanent component and focus on the allocation of the transitory component, which by construction contains little information about future growth opportunities. We find that more financially constrained firms allocate more transitory cash flow to cash savings and direct less toward investmentthan do less constrained firms, consistent with constrained firms accumulating liquidity to buffer against future financial constraints. We also illustrate several methodological advantages of our approach over alternative methods in previous studies

Does cash flow predict returns?

In this paper, we propose the hypothesis that cash flow and cash flow volatility predict returns. We categorize firms listed on the New York Stock Exchange into sectors, and apply tests for both in-sample and out-of-sample predictability. While we find strong evidence that cash flow volatility predicts returns for all sectors, the evidence obtained when using cash flow as a predictor is relatively weak. Estimated profits and utility gains also suggest that it is cash flow volatility that is more relevant as a source of information than cash flow.

A random coefficient approach to the predictability of stock returns in panels

© The Author, 2014. Most studies of the predictability of returns are based on time series data, and whenever panel data are used, the testing is almost always conducted in an unrestricted unit-by-unit fashion, which makes for a very heavy parametrization of the model. On the other hand, the few panel tests that exist are too restrictive in the sense that they are based on homogeneity assumptions that might not be true. As a response to this, the current study proposes new predictability tests in the context of a random coefficient panel data model, in which the null of no predictability corresponds to the joint restriction that the predictive slope has zero mean and variance. The tests are applied to a large panel of stocks listed at the New York Stock Exchange. The results suggest that while the predictive slopes tend to average to zero, in case of book-to-market and cash flow-to-price the variance of the slopes is positive, which we take as evidence of predictability.

Surviving financial distress : the case of too many herbs and spices

Over 120 years ago Sir James Burns founded an organisation that is today, the international business group of Burns Philp and Company Ltd. The Group is widely known as a leading producer of yeast products and manufacturer of other bakery ingredients. Its ability to adapt to the ever-changing demands of business is widely recognised. During the late 1980’s however, after the group expanded into the herbs and spices industry its financial state deteriorated. Yet, arguably the Group had entered a market that complimented its then existing core-activities. This paper examines circumstances surrounding that venture into herbs and spices. It argues that the Group’s financial predicament, at that time, was exacerbated by the use of conventional accounting procedures. It illustrates that up-to-date market related financial details, in lieu of accounting book constructs, more aptly assist directors, managers, all stakeholders to conduct business and make informed economic decisions. This paper suggests that it is an entity’s current financial state of affairs, with regard to tangible market referents, that enables a firm’s strategic progress and facilitates proactive management; and in turn, assists in the sustainable development of business throughout the world.

Dietary counseling to increase natural folate intake: a ransomized placebo-controlled trial in free-living subjects to assess effects on serum folate and plasma total homocysteine.

BACKGROUND: The association between vascular disease and elevated plasma total homocysteine (tHcy) concentrations is caused, in part, by inadequate intakes of dietary folate. Increasing folate intake either through supplements or foods naturally rich in folates has been shown to decrease tHcy concentrations. OBJECTIVE: The aim of this study was to determine whether a similar reduction in tHcy was possible in free-living persons receiving dietary counseling. DESIGN: The study included a 4-wk placebo-controlled dietary intervention trial in which participants consumed either unfortified breakfast cereal (control group) or an extra 350 micro g folate derived from food/d (dietary group). Serum folate and tHcy concentrations in both groups were measured before and after the intervention period, and the concentrations in the dietary group were also measured 17 wk after the intervention period. RESULTS: During the 4-wk intervention, mean dietary folate intake in the dietary group increased from 263 (95% CI: 225, 307) to 618 micro g/d (535, 714), resulting in a mean increase in serum folate of 37% (15%, 63%) and a decrease in tHcy from 12.0 (10.9, 13.3) to 11.3 micro mol/L (10.2, 12.5). A further decrease in tHcy occurred in the dietary group during follow-up, with a final tHcy concentration of 9.7 micro mol/L (8.8, 10.8). CONCLUSIONS: Increasing natural folate intake improved folate status and decreased tHcy concentrations to an extent that may significantly reduce the risk of vascular disease. Dietary modification may have advantages over folic acid fortification because the altered food-consumption patterns lead to increased intakes of several vitamins and minerals and decreased intakes of saturated fatty acids.

What can Hannah Arendt's theorising add to equity policy activism in higher education institutions?

Human rights theory is based on universalistic moral perspectives that regard each individual as a bearer of rights. These rights are often legislated nationally and implementation mandated for institutions including higher education institutions. Arendt contests this kind of governance and ruling. Arendt argues for an agonal politics. Arendt theorises politics and power as something that cannot occur in isolation; it is through ‘acting in concert’ with others that a political community is constituted. Arendt advocates for a public space where people can take care of the ‘public things’ between them to work out how to live together. In this paper I reflect on my role promoting equity within Australian higher education institutions and explore what Arendt’s theorising can add to rethinking this kind of human rights work. Arendt argued that re-valuing politics would pave the way to a ‘new appreciation of human plurality’ (Villa 1996: 17). I will argue that the ‘Fair Chance for All’ (1990) equity policy promoted a form of identity politics within higher education institutions. I argue that Arendt’s theorising can effectively disrupt identity politics and offers a corrective to the way human rights legislation and related institutional policies tend to focus on specific target populations.

Just out of reach : access to equity in Australian higher education

This paper provides an account of access and equity in Australian higher education across the period of recent Federal Labor governments and specifically of the discourses and practices surrounding A Fair Chance For All: Higher Education That's Within Everyone's Reach, Labor's latest policy on equal access to Australian higher education. The paper positions such an account within Australia's changing national and global economic condition, and the influence of New Right ideologies that proffer efficient and effective public sector management practices and market freedoms that have witnessed a privatisation and peeling back of the welfare state. The paper argues that while Federal Labor has clearly established social justice on the agenda of Australian higher education, it is a justice mediated by particular economic and managerial practices which tend to limit equity to issues of access and place broader equity concerns for higher education just out of reach.

Predicting future earnings growth: a test of the dividend payout ratio in the Australian market

This paper examines the use of the payout ratio as a predictor of a firm’s future earnings growth. Recent evidence rejects the hypothesis that firm which retain a large portion of their earnings have strong future earnings growth. Higher dividend payout ratios instead correspond to higher future earnings growth. Examining both listed and delisted firms on the Australian stock exchange over the period 1989 to 2008, we provide further evidence that the dividend payout ratio is positively linked to future earnings growth. The results hold over both one, three and five year periods. Furthermore, our results rejected claims that such a relationship was caused by simple mean reversion in earnings. We find no evidence to support the cash flow signaling and free cash flow hypotheses as an explanation for this relationship.

Ultimate controlling shareholders and dividend payout policy in Chinese stock market

Departing from the traditional cash flow rights-dividend policy framework, this study investigates whether the level of control rights and the types of ultimate controlling shareholders (UCSs) of listed firms in China influence their cash dividend payout. We find that the level of control rights is positively associated with both the probability to pay and the level of cash dividend payout, which indicates that UCSs use cash dividends to reduce the agency cost of free cash flow and redirect listed firms' cash balance. Furthermore, different types of UCSs influence dissimilarly on the controlled firms' cash dividends, which can be attributed to the backgrounds of these UCSs originating from China's unique partial share issuance privatization process.

Corporate political connections, agency costs and audit quality

Purpose – The effect of political connections of agency costs has attracted considerable research attention due to the increasing recognition of the fact that political connection influences corporate decisions and outcomes. This paper aims to explore the association between corporate political connections and agency cost and examine whether audit quality moderates this association. Design/methodology/approach – A data set of Bangladeshi listed non-financial companies is used. A usable sample of 968 firm-year observations was drawn for the period from 2005 to 2013. Asset utilisation ratio, the interaction of Tobin’s Q and free cash flow and expense ratio are used as alternative proxies for agency costs; membership to Big 4 audit firms or local associates of Big 4 firms is used as a proxy for audit quality. Findings – Results show that politically connected firms exhibit higher agency costs than their unconnected counterparts, and audit quality moderates the relationship between political connection and agency costs. The results of this paper suggest the importance of audit quality to mitigate agency problem in an emerging economic setting. Research limitations/implications – The findings of this paper could be of interest to regulators wishing to focus regulatory effort on significant issues influencing stock market efficiency. The findings could also inform auditors in directing audit effort through a more complete assessment of risk and determining reasonable levels of audit fees. Finally, results could inform financial statement users to direct investments to firms with lower agency costs. Originality/value – To the knowledge of the authors, this study is one of the first to explore the relationship between political connection and agency costs, and the moderating effect of audit quality of this relationship.

On the alleged failure of free will theodicies : a reply to Tierno

In a recent issue ofSophia Joel Tierno contends that free will theodicies are fundamentally flawed insofar as they claim to provide an adequate explanation for God’s permission of moral evil. Free will, according to Tierno, only accounts for our ability to make certain choices that issue in evil, but fails to account for the fact that we often do make such choices. However, the argument developed by Tierno, despite its initial appeal, embodies an important misunderstanding of the nature of free will theodicies and in particular the libertarian conception of human freedom customarily employed by these theodicies.