Earnings overseas and cash holdings

I investigate the impact of foreign pre-tax income on the total amount of cash held by companies and on the amount of cash that is held in companies’ foreign subsidiaries. I also investigate the impact of the existence and amount of cash held on companies’ foreign subsidiaries in the composition of cash holdings in terms of risk and liquidity. Using a sample of 100 largest U.S. non-financial and non-utilities companies I find that companies with higher earnings overseas present higher cash reserves and invest a higher fraction of their cash in risky assets. My evidence suggests that companies have a different optimization strategy for cash overseas, in which precautionary motives are not the main driver for holding cash.

The effect of financial constraints, investment policy, product market competition and corporate governance on the value of cash holdings

This study empirically investigates the value shareholders place on excess cash holdings and how shareholders’ valuation of cash holdings is associated with financial constraints, firm growth, cash-flow uncertainty and product market competition for Australian firms from 1990 to 2007. Our results indicate that the marginal value of cash holdings to shareholders declines with larger cash holdings and higher leverage. However, firms that are more financially constrained, that have higher growth rates and that face greater uncertainty exhibit a higher marginal value of cash holdings. These findings are consistent with the explanation that excess cash holdings are not necessarily detrimental to firm value. Firms with costly external financing and that also save more cash for current operating and future investing needs find that the market values these cash hoarding policies favourably. Finally, there is limited evidence of an association between various corporate governance measures and the value of cash holdings for a shorter sample period.

Family control and corporate cash holdings: Evidence from China

This study examines the effect of family control on the cash holding policy in China. We find that family firms with excess control rights tend to have high cash holdings that are tunneled rather than being invested or paid to shareholders. We further show that the incentive for controlling families to hold cash and for tunneling is exacerbated by the agency conflict between controlling and minority shareholders, i.e., it is weakened after the Chinese Non-tradable share (NTS) reform and strengthened by the presence of multiple large shareholders who probably play no monitoring role in Chinese family firms. Furthermore, family firms’ incentive to hold cash for tunneling is influenced by the unique characteristics of Chinese firms in the following ways: the incentive is stronger when the family founder has one child and face family succession problem, and when the founder has political connections and directly involves in firm’s management; while it is weakened by family founder’s social interpersonal trust with other entrepreneurs through their membership of Chambers of Commerce. Overall, we argue that family firms in China tend to hold high levels of cash for tunneling, which harms firm value, while the severe controlling-minority shareholder agency conflicts and unique Chinese family characteristics only make this situation worse.

Políticas de cash holdings: uma abordagem dinâmica das empresas brasileiras

Essa dissertação investiga como as empresas brasileiras ajustaram o nível de cash holdings durante o período da crise 2008-2009 em que o crédito de curto prazo é escasso. Utilizamos um modelo dinâmico de caixa para avaliar os principais determinantes da velocidade de ajuste do nível de cash holdings em direção ao nível ótimo, principalmente em períodos de crise quando há um aumento dos custos de ajustes em decorrência da dificuldade de acesso ao crédito bancário. Encontramos evidências empíricas que: a) o comportamento dinâmico de caixa é significativo e os custos de ajustes das empresas brasileiras são altos, impedindo o ajuste imediato para o nível ideal de caixa; b) a baixa velocidade de ajuste da estrutura de caixa é decorrente da pouca disponibilidade de crédito e do alto custo da dívida bancária; c) durante a crise, o capital de giro está positivamente relacionado ao nível de cash holdings, mas como esse recurso é escasso, há retração no capital de giro líquido; d) A falta de linha de crédito bancário que financie o crescimento das empresas, estimula a utilização da dívida de longo prazo para reter caixa e implica em uma relação negativa entre investimentos e cash holdings.

In cash we trust: cash holdings in the brazilian equity fund industry

We study cash allocation ability as a possible explanatory factor that allows equity fund managers to produce high levels of adjusted returns (not explained by the risk factors they are exposed to). In order to do so, we explore the non-indexed Brazilian equity fund industry during the period of January 2006 to February 2015, evaluating cash allocation ability by level and effectiveness of cash deployment using return-based and holding-based approaches to explore a database of monthly invested assets and returns. We found that even though market timing is a rare skill in the industry, the flexibility to hold high levels of cash played a significant role in the result of over performing managers.

Motives for corporate cash holdings:the CEO optimism effect

We examine the chief executive officer (CEO) optimism effect on managerial motives for cash holdings and find that optimistic and non-optimistic managers have significantly dissimilar purposes for holding more cash. This is consistent with both theory and evidence that optimistic managers are reluctant to use external funds. Optimistic managers hoard cash for growth opportunities, use relatively more cash for capital expenditure and acquisitions, and save more cash in adverse conditions. By contrast, they hold fewer inventories and receivables and their precautionary demand for cash holdings is less than that of non-optimistic managers. In addition, we consider debt conservatism in our model and find no evidence that optimistic managers’ cash hoarding is related to their preference to use debt conservatively. We also document that optimistic managers hold more cash in bad times than non-optimistic managers do. Our work highlights the crucial role that CEO characteristics play in shaping corporate cash holding policy.

Cash holdings and bond returns around takeovers

Using a large sample of 2712 unique U.S. domestic takeovers over the period 1993 to 2014, we show a negative relation between the level of cash holdings and post-announcement corporate bond returns. Our findings support the agency cost of cash holdings view and show that bondholders and shareholders share the same interests with respect to cash policy around takeovers. We further find that cash holdings are viewed less negatively by bondholders in firms with strong shareholders. This paper is the first to document the role of cash holdings on bondholder wealth around takeover announcements.

How much is corporate cash-pooling worth? Modelling and simulation

The paper analyzes a special corporate banking product, the so called cash-pool, which gained remarkable popularity in the recent years as firms try to centralize and manage their liquidity more efficiently. The novelty of this paper is the formalization of a valuation model which can serve as a basis for a Monte Carlo simulation to assess the most important benefits of the firms arising from the pooling of their cash holdings. The literature emphasizes several benefits of cash-pooling such as interest rate savings, economy of scale and reduced cash-flow volatility. The presented model focuses on the interest rate savings complemented with a new aspect: the reduced counterparty risk toward the bank. The main conclusion of the analysis is that the value of a cash-pool is higher in case of firms with large, diverse and volatile cash-flows having less access to the capital markets especially if the partner bank is risky and offers a high interest spread. It is also shown that cash-pooling is not the privilege of large multinational firms any more as the initial direct costs can be easily regained within a year even in the case of SMEs.

Agency problems of corporate philanthropy

Evaluating agency theory and optimal contracting theory views of corporate philanthropy, we find that as corporate giving increases, shareholders reduce their valuation of firm cash holdings. Dividend increases following the 2003 Tax Reform Act are associated with reduced corporate giving. Using a natural experiment, we find that corporate giving is positively (negatively) associated with CEO charity preferences (CEO shareholdings and corporate governance quality). Evidence from CEO-affiliated charity donations, market reactions to insider-affiliated donations, its relation to CEO compensation, and firm contributions to director-affiliated charities indicates that corporate donations advance CEO interests and suggests misuses of corporate resources that reduce firm value.

Asset Liquidity and Stock Liquidity: International Evidence

This study examines the relationship between asset liquidity and stock liquidity across 47 countries. In support of the valuation uncertainty hypothesis, we find that firms with greater asset liquidity on average have higher stock liquidity. More importantly, our study shows that asset liquidity plays amore significant role in resolving valuation uncertainty in countries with poor information environment. For example, we find that the asset–stock liquidity relationship is stronger in countries with poor accounting standards. We further find evidence that after the adoption of IFRS, the improved accounting information environment results in a weaker asset–stock liquidity relation, but only in countries with a strong legal regime. Finally, our study shows that the positive asset–stock liquidity relationship may be attributed to transparency and/or liquidity reasons.

The effects of financial constraints on corporate policies in Australia

We jointly study the impact of financial constraints on Australian companies' investment decisions and demand for liquidity. By examining a large sample of Australian firms over the period 1990–2003, we find that financial constraints not only reduce the sensitivity of investment to the availability of internal funds, but also increase the responsiveness of cash holdings to internally generated cash flows. Further analysis shows that the impact of financial constraints varies across different cash flow states; that is, financial constraints have a small effect on corporate investment and cash policies when cash flows are positive. In contrast, the severity of constraints is high in negative cash flow years in which the cost disadvantage of external finance coincides with deteriorating operating performance.

Inflation tax in the lab: a theoretical and experimental study of competitive search equilibrium with inflation

In this paper we measure the effect of the inflation tax on economic activity and welfare within a controlled setting.To do so,we develop a model of price posting and monetary exchange with inflation and finite populations.The model,which provides a game–theoreticfoundation to Rocheteau and Wright(2005)'s competitive search monetary equilibrium, is used to derive theoretical propositions regarding the effects of inflation in thisenvironment, which we test with a laboratory experiment that closely implements the theoretical framework.We find that the inflation tax is harmful – with cash holdings, production and welfare all falling as inflation rises – and that its effect is relatively larger at low inflation rates than at higher rates.For instance,for inflation rates between 0%and5%, welfare in the two markets we consider (2[seller] 2[buyer] and 3 2) falls by roughly 1 percent for each percentage–point rise in inflation, compared with 0.4 percent over the range from 5% to 30%.Our findings lead us to conclude that the impact of the inflation tax should not be underestimated, even under low inflation.

Determinantes da reserva de caixa das empresas brasileiras

Estudos que investigam as razões do acumulo de caixa e a existência de uma política de gestão ativa do caixa têm ganhado evidência na literatura acadêmica internacional nos últimos anos. As pesquisas que consideram os determinantes do nível de caixa e suas implicações ainda encontram-se em um estágio inicial. Adicionalmente, pesquisas ao redor do mundo têm encontrado elevado nível de caixa acumulado pelas empresas. De acordo com as principais linhas de investigação empírica, três correntes teóricas podem explicar o nível de caixa a partir das variáveis denominadas determinantes: tradeoff theory, pecking order theory e a teoria de agência. Este estudo tem por objetivo investigar empiricamente os determinantes do caixa e identificar a existência ou não de uma política de gestão ativa nas empresas brasileiras. Foi realizada uma pesquisa com amostra de 198 empresas listadas na BOVESPA, no período de 1998 a 2008, totalizando 2178 observações. A pesquisa utilizou modelos econométricos de regressão linear e painel de dados. Com as evidências empíricas encontradas, podemos concluir que a gestão do nível de caixa acumulado é uma importante decisão a ser tomada pelas empresas brasileiras. As teorias que suportam as explicações dos determinantes do nível de caixa podem ser aplicadas de modo complementar ao invés de divergentes.

Capital flows and monetary control under a domestic currency substitution regime: the recent Brazilian experience

The 90s have witnessed a resumption in capital flows to Latin America. due to the conjugation of low interest rates in the US and economic reforms in most LA countries. In Brazil. however. substantial capital flows have becn induced by the extremely high domestic interest rates practiced by the Central Bank as a measure of last reson given the absence of successful stabilization policies. These very high interest rates were needed to prevent capital flight in a context of a surprisingly stable inflation rate above 20% a month. and keep interest bearing govemment securities preferable to foreign assets as money substitutes. We carefully describe how this domestic currency substitution regime (interest bearing govemment securities are substituted for MIas cash holdings) requires the Central Bank to renounce aoy control over monerary aggregates. In this domestic currency substitution regime. hyperinflation is the most likely outcome of an isolated (i.e.. without fiscal adjusanents) attempt by the Brazilian Central Bank to control money.

The certification role of venture capitalists, top underwriters and big-n auditors in ipos

Esta tese avalia o impacto dos principais atores recorrentes durante o processo de IPO, em particular, o venture capitalist, o underwriter, e o auditor, sobre as condições de comercialização das ações da empresa, capturado pelo bid-ask spread, a fração de investidores institucionais que investem na empresa, a dispersão de capital, entre outros. Além disso, este estudo também analisa alguns benefícios que os fundos de Venture Capital (VCs) fornecem às empresas que eles investem. Ele investiga o papel dos VCs em dificultar o gerenciamento de resultados em IPOs e quantifica o papel desempenhado por eles no desempenho operacional das empresas após sua oferta inicial de ações. No primeiro capítulo, os resultados indicam que as empresas inflam seus resultados principalmente nos períodos pré-IPO e do IPO. Quando nós controlamos para os quatro períodos diferentes do IPO, observamos que IPOs de empresas investidas por VCs apresentam significativamente menos gerenciamento de resultados no IPO e em períodos seguintes à orfeta inicial das ações, exatamente quando as empresas tendem a inflar mais seus lucros. Este resultado é robusto a diferentes métodos estatísticos e diferentes metodologias usadas para avaliar o gerenciamento de resultados. Além disso, ao dividir a amostra entre IPOs de empresas investidas e não investidas por VCs, observa-se que ambos os grupos apresentam gerenciamento de resultados. Ambas as subamostras apresentam níveis de gerenciamento de resultados de forma mais intensa em diferentes fases ao redor do IPO. Finalmente, observamos também que top underwriters apresentam menores níveis de gerenciamento de resultados na subamostra das empresas investidas por VCs. No segundo capítulo, verificou-se que a escolha do auditor, dos VCs, e underwriter pode indicar escolhas de longo prazo da empresa. Nós apresentamos evidências que as características do underwriter, auditor, e VC têm um impacto sobre as características das empresas e seu desempenho no mercado. Além disso, estes efeitos são persistentes por quase uma década. As empresas que têm um top underwriter e um auditor big-N no momento do IPO têm características de mercado que permanecem ao longo dos próximos 8 anos. Essas características são representadas por um número maior de analistas seguindo a empresa, uma grande dispersão da propriedade através de investidores institucionais, e maior liquidez através um bid-ask spread menor. Elas também são menos propensas a saírem do mercado, bem como mais propensas à emissão de uma orferta secundária. Finalmente, empresas investidas por VCs são positivamente afetadas, quando consideramos todas as medidas de liquidez de mercado, desde a abertura de capital até quase uma década depois. Tais efeitos não são devido ao viés de sobrevivência. Estes resultados não dependem da bolha dot-com, ou seja, os nossos resultados são qualitativamente similares, uma vez que excluímos o período da bolha de 1999-2000. No último capítulo foi evidenciado que empresas investidas por VCs incorrem em um nível mais elevado de saldo em tesouraria do que as empresas não investidas. Este efeito é persistente por pelo menos 8 anos após o IPO. Mostramos também que empresas investidas por VCs estão associadas a um nível menor de alavancagem e cobertura de juros ao longo dos primeiros oito anos após o IPO. Finalmente, não temos evidências estatisticamente significantes entre VCs e a razão dividendo lucro. Estes resultados também são robustos a diversos métodos estatísticos e diferentes metodologias.