The impact of financial development and market conditions on investment-cash flow sensitivity: global evidence

In this study, we analyze the impact of financial development and market conditions on investment-cash flow sensitivity during the 2006-2014 for 76 countries. First, the results show a relationship between investment-cash flow sensitivity and an index of financial development and its components. Second, 68 countries are affected by the 2008-2009 financial crisis, but only 16 countries exhibit a higher investment-cash flow sensitivity during the crisis. Third, investment-cash flow sensitivity is lower in countries with a larger primary debt market, while the size of the primary equity market has no impact. Finally, analyzing investment-cash flow sensitivity over time, we find lower sensitivity during years associated with higher primary debt market activity.

Relationship between Changes in Cash Flow and Investments in Publicy Traded Restaurant Firms in the United States

This research investigated the relationship between investments in fixed assets and free cash flows of U.S. restaurant firms while controlling for future investment opportunities and financial constraints. It also investigated investment and cash-flow sensitivity in the context of economic conditions. Results suggested that investments in small firms (with higher financial constraints) had relatively weaker sensitivity to cash flows than investments in large firms (with higher sensitivity). Controlling for economic conditions did not significantly change results. While the debate over sensitivity of investments to cash flows remains unresolved, it has not been explored widely in industry contexts, especially in services such as the restaurant industry. In addition to its contribution to this literature, this paper provides implications for cash-flow management in publicly traded restaurant companies.

Implications of FIN 46 for Accruals Quality and Investment Efficiency

The Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities – An Interpretation of ARB No. 51, in January 2003 and revised it in December 2003, with the objective to improve the transparency of financial information. Under FIN 46, companies are required to consolidate variable interest entities (VIEs) on financial statements if they are the primary beneficiaries of the VIEs. This dissertation empirically examines whether the implementation of this new financial reporting guidance affects firms’ accruals quality and investment efficiency. A manually collected sample comprised of firms affected by FIN 46 and firms disclosing no material impact from FIN 46 is used in the empirical analyses.The first part of the dissertation investigates the effects of FIN 46 on accruals quality. By using different accrual quality measures in prior studies, this study found that firms affected by FIN 46 experienced a decrease in accrual quality compared to firms reporting no material impact from FIN 46. Among the firms affected by FIN 46, firms consolidating VIEs were compared with firms terminating or restructuring VIEs. The accruals quality of firms consolidating VIEs was found to be lower than that of firms terminating or restructuring VIEs. These results are consistent in tests using alternative control samples.The second part of this dissertation examines the effects of FIN 46 on investment efficiency. Mixed results were found from using two different proxies used in prior literature. Using the investment-cash flow sensitivity to proxy for investment efficiency, firms affected by FIN 46 experienced a decrease in investment efficiency compared to firms reporting no material impact. It was also found that higher investment-cash flow sensitivity for firms consolidating VIEs during post-FIN 46 periods compared to both the no-impact firms and the matched pair control sample. Contrasting results were found when the deviation from expected investment is used as another proxy for investment efficiency. Empirical analyses show that FIN 46 firms experienced improved investment efficiency measured by the deviation from expected investment after their adoption of FIN 46. This study also provides explanations for the opposite results from the two different proxies.

Essays in corporate finance

China has been growing rapidly over the last decades. The private sector is the driving force of this growth. This thesis focuses on firm-level investment and cash holdings in China, and the chapters are structured around the following issues. 1. Why do private firms grow so fast when they are more financially constrained? In Chapter 3, we use a panel of over 600,000 firms of different ownership types from 1998 to 2007 to find the link between investment opportunities and financial constraints. The main finding indicates that private firms, which are more likely to be financially constrained, have high investment-investment opportunity sensitivity. Furthermore, this sensitivity is relatively lower for state-owned firms in China. This shows that constrained firms value investment opportunities more than unconstrained firms. To better measure investment opportunities, we attempt to improve the Q model by considering supply and demand sides simultaneously. When we capture q from the supply side and the demand side, we find that various types of firms respond differently towards different opportunity shocks. 2. In China, there are many firms whose cash flow is far greater than their fixed capital investment. Why is their investment still sensitive to cash flow? To explain this, in Chapter 4, we attempt to introduce a new channel to find how cash flow affects firm-level investment. We use a dynamic structural model and take uncertainty and ambiguity aversion into consideration. We find that uncertainty and ambiguity aversion will make investment less sensitive to investment opportunities. However, investment-cash flow sensitivity will increase when uncertainty is high. This suggests that investment cash flow sensitivities could still be high even when the firms are not financially constrained. 3. Why do firms in China hold so much cash? How can managers’ confidence affect corporate cash holdings? In Chapter 5, we analyse corporate cash holdings in China. Firms hold cash for precautionary reasons, to hedge frictions such as financing constraints and uncertainty. In addition, firms may act differently if they are confident or not. In order to determine how confidence shocks affect precautionary savings, we develop a dynamic model taking financing constraints, uncertainty, adjustment costs and confidence shocks into consideration. We find that without confidence shocks, firms will save money in bad times and invest in good times to maximise their value. However, if managers lose their confidence, they tend to save money in good times to use in bad times, to hedge risks and financing constraint problems. This can help explain why people find different results on the cash flow sensitivity of cash. Empirically, we use a panel of Chinese listed firms. The results show that firms in China save more money in good times, and the confidence shock channel can significantly affect firms’ cash holdings policy.

Property cash flow studies : focusing on model consistency and data accuracy

The high degree of variability and inconsistency in cash flow study usage by property professionals demands improvement in knowledge and processes. Until recently limited research was being undertaken on the use of cash flow studies in property valuations but the growing acceptance of this approach for major investment valuations has resulted in renewed interest in this topic. Studies on valuation variations identify data accuracy, model consistency and bias as major concerns. In cash flow studies there are practical problems with the input data and the consistency of the models. This study will refer to the recent literature and identify the major factors in model inconsistency and data selection. A detailed case study will be used to examine the effects of changes in structure and inputs. The key variable inputs will be identified and proposals developed to improve the selection process for these key variables. The variables will be selected with the aid of sensitivity studies and alternative ways of quantifying the key variables explained. The paper recommends, with reservations, the use of probability profiles of the variables and the incorporation of this data in simulation exercises. The use of Monte Carlo simulation is demonstrated and the factors influencing the structure of the probability distributions of the key variables are outline. This study relates to ongoing research into functional performance of commercial property within an Australian Cooperative Research Centre.

Cash flow and discount rate risk decomposition and ICAPM for the US and brazilian stock markets

Esse trabalho é uma aplicação do modelo intertemporal de apreçamento de ativos desenvolvido por Campbell (1993) e Campbell e Vuolteenaho (2004) para as carteiras de Fama-French 2x3 brasileiras no period de janeiro de 2003 a abril de 2012 e para as carteiras de Fama-French 5x5 americanas em diferentes períodos. As varíaveis sugeridas por Campbell e Vuolteenaho (2004) para prever os excessos de retorno do mercado acionário americano no period de 1929 a 2001 mostraram-se também bons preditores de excesso de retorno para o mercado brasileiro no período recente, com exceção da inclinação da estrutura a termo das taxas de juros. Entretanto, mostramos que um aumento no small stock value spread indica maior excesso de retorno no futuro, comportamento que não é coerente com a explicação para o prêmio de valor sugerida pelo modelo intertemporal. Ainda, utilizando os resíduos do VAR preditivo para definir o risco de choques de fluxo de caixa e de choques nas taxas de desconto das carteiras de teste, verificamos que o modelo intertemporal resultante não explica adequadamente os retornos observados. Para o mercado norte-americano, concluímos que a abilidade das variáveis propostas para explicar os excessos de retorno do mercado varia no tempo. O sucesso de Campbell e Vuolteenaho (2004) em explicar o prêmio de valor para o mercado norte-americano na amostra de 1963 a 2001 é resultado da especificação do VAR na amostra completa, pois mostramos que nenhuma das varíaveis é um preditor de retorno estatisticamente significante nessa sub-amostra.

EC94-852 Cash Flow Planning Form

This extension circular covers the following areas of a cash flow planning form: Beginning Cash Balance, Operating Sales (crop and hay, market livestock, livestock product, custom work); Capital Sales (breeding livestock, machinery and equipment); Personal Income (wages, interest); Operating Expenses (car/truck, chemicals, conservation, custom hire, feed purchased, fertilizers and lime, freight and trucking, gasoline, fuel and oil, insurance, labor hired, rents and leases, repairs and maintenance, seeds and plants, storage, warehousing, supplies, taxes, utilities, veterinary, breeding fees and medicine, feeder livestock); Capital Purchases (breeding livestock, machinery and equipment, family living withdrawals, personal investments, income and social security, term loan payments); Net Cash Available (operating loan borrowings, operating loan payments); and Ending Operating Loan Balance. Along with the Cash Flow Planning Form is a Projected Income Statement Form which covers Projected Business Income (operating sales, breeding livestock, estimated cash income adjustments, estimated gross revenues, estimated value of production); Project Business Expenses (cash operating, esimated operating, prepaid and supplies, cash investment in growing crops, accounts payable); Projected Net Income Summary (estimated net income from operations, estimated net business income, estimated net income after taxes, estimated earned net worth change); and a Physical Inventory Flows Worksheet.

JEFFI [microform] : a simplified, Lotus-based cash flow analysis program /

"July 1993"--P. [2] of cover.

Investment efficiency among a cross-section of UK firms:implications for the debate on financing constraints

In this paper, we address this policy issue using a stylised methodology that relies on estimates of the cash flow sensitivity of firms’ investment, as well as a relatively new methodology that enables us to generate a (0, 1) bounded measure of investment efficiency of firms, i.e., the efficiency with which firms can convert their sales into investment, after controlling for unobserved year- and industry-specific effects. Higher investment efficiency is associated with lower financing constraint. Our results indicate that there is considerable heterogeneity in investment efficiency across firms, during a given year; the range being 0.57-0.82. However, the average investment efficiency measure is similar across years, regions and NACE 2-digit industries. We also do not find discernible patterns in the relationship between investment efficiency and firm size, both before and during the financial crisis. The results suggest that while some firms are clearly less efficient at translating their performance into investment, broad policies targeting firms of a certain size, or those within a particular industry or region, may not successfully address the problem of financing constraint in the United Kingdom. The targeting of firms with financing constraints may have to be considerably more refined, and look at not easily observable factors such as credit history/events and organisational capacity of the firms.

Partial Flow Sensitivity

Compiler optimizations need precise and scalable analyses to discover program properties. We propose a partially flow-sensitive framework that tries to draw on the scalability of flow-insensitive algorithms while providing more precision at some specific program points. Provided with a set of critical nodes — basic blocks at which more precise information is desired — our partially flow-sensitive algorithm computes a reduced control-flow graph by collapsing some sets of non-critical nodes. The algorithm is more scalable than a fully flow-sensitive one as, assuming that the number of critical nodes is small, the reduced flow-graph is much smaller than the original flow-graph. At the same time, a much more precise information is obtained at certain program points than would had been obtained from a flow-insensitive algorithm.

Almirante: Evaluating the board game: Board game, startup, discounted cash flow, venture capital method, real options

This thesis evaluates a start-up company (Jogos Almirante Lda) whose single asset is a board game named Almirante. It aims to conclude whether it makes sense to create a company or just earn copyrights. The thesis analyzes the board game’s market, as part of the general toy’s market, from which some data exists: European countries as well as the USA. In this work it is analyzed the several ways to finance a start-up company and then present an overview of the valuation of the Jogos Almirante based on three different methods: Discounted Cash Flow, Venture Capital Method and Real Options.

Reporting cash flow evidence from campanies listed in the Euronext Lisbon

Based on the 2013 and 2014 consolidated statements of cash flows of companies listed in Euronext Lisbon, this Work Project analyses the cash flow disclosures, namely if they are in accordance with International Accounting Standards 7, specifically the format, the choice of classification interests, dividends paid and received and the composition of cash and cash equivalents. Additionally, quality of income ratio is analyzed due to its importance for users of financial statements. The results show evidence of uniformity and consistency in the use of the direct method for reporting operational activities in both years, but there are some differences regarding the disclosure of interests and dividends, paid and received, respectively.