Cash holdings and earnings quality: evidence from the Main and Alternative UK markets

Farinha, Jorge; Mateus, Cesário; Soares, Nuno

doi:10.1016/j.irfa.2018.01.012

Cited by 57 publications

(72 citation statements)

References 67 publications

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“…This result is supported by Ogundipe et al (2012) and Farinha et al (2018) who investigate the influence of financial distress towards cash holdings. They found positive significance relationship between financial distress and cash holdings.…”

Section: Probability Of Financial Distress and Cash Holdingssupporting

confidence: 65%

The Determinants of Cash Holdings: Evidence from Listed Manufacturing Companies in Indonesia

Umry¹

2018

jafas

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This research aims to investigate empirically the determinants of cash holdings of manufacturing companies which are listed on Indonesian Stock Exchange (IDX) for the period of 2012 determining factors which were chosen include debt maturity structure and probability of financial distress This research took 636 company-year observations as research sample by using purposive sampling technique in selecting the sample. By applying multiple linear regression analysis, the result revealed that debt maturity structure has negative significant relationship on cash holdings and probability of financial distress h positive significant relationship on cash holdings. These findings provide evidence that when companies have larger proportion of long-term debt, they will keep lower amount of cash. And when companies face financially distressed, they will keep higher amount of cash in the company because of precautionary motive which make desire to hold more cash.

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Section: Probability Of Financial Distress and Cash Holdingssupporting

confidence: 65%

The Determinants of Cash Holdings: Evidence from Listed Manufacturing Companies in Indonesia

Umry¹

2018

jafas

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“…Comparing the two subsamples, we observe that the coefficient on CF/assets is negative and significant only in the group of mature firms. Farinha et al (2018) suggest that young firms have better earnings quality and higher cash flow, while higher liquidity is related to lower levels of debt and R&D expenses. Moreover, we find that the coefficient on RSPREAD remains positive and significant but only in the group of mature firms.…”

Section: Cross-sectional Testsmentioning

confidence: 99%

Firm Size Does Matter: New Evidence on the Determinants of Cash Holdings

Magerakis

Γκίλλας

Τσαγκανός

et al. 2020

JRFM

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We study the financial determinants of cash holdings and discuss the importance of firm size in the post-crisis period. We employ panel data regression analysis on a sample of 6629 non-financial and non-utility listed companies in the United Kingdom from 2010 to 2018. We focus on the comparative analysis of large, medium, and small size firms in terms of cash holdings. Our findings indicate that cash levels are higher for firms with riskier cash flows, more growth opportunities, and higher R&D expenditures. In contrast, the firms’ cash holdings decrease when the substitutes of cash, cash flows, and capital expenditures increase. We show that small-sized firms tend to hold more cash than their larger counterparts due to precautionary motives. Further, we confirm a significant and varying association between managerial ownership and cash holdings. The study is robust to different regression specifications, additional analyses, and endogeneity tests. Overall, we add to the prior literature by identifying the effect of firm-level attributes and governance characteristics on cash policy during the post-crisis period. To the best of the authors’ knowledge, this is the first work that provides insights on the way that firm characteristics impact cash holdings, considering the differences among firm size groupings.

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“…E i,t is a vector of error terms. (Dechow & Dichev, 2002;Farinha et al, 2018;Raman et al, 2013 financial flexibility considered firms liquidity, leverage, and internal funds. A single index is the index of either leverage Billett et al (2007); Denis & Mckeon, 2009; or cash holdings (Arslan-Ayaydin et al 2014;Byoun, 2008;Hoberg et al 2014;Marchica and Mura, 2010).…”

Section: Empirical Modelmentioning

confidence: 99%

“…A single index is the index of either leverage Billett et al (2007); Denis & Mckeon, 2009; or cash holdings (Arslan-Ayaydin et al 2014;Byoun, 2008;Hoberg et al 2014;Marchica and Mura, 2010). Using the single index method, this research used cash holdings as a proxy of financial flexibility, which is measured of cash and cash equivalents scaled by total assets following (Farinha, Mateus, & Soares, 2018;Ozkan & Ozkan, 2004).…”

Section: Empirical Modelmentioning

confidence: 99%

“…Earnings Quality. To construct earnings quality, we used the industry crosssectional approach primarily suggested by Dechow and Dichev (2002) extended by Francis et al (2005) and (Farinha et al, 2018). The proposed model considered that accruals help match past, present, and future cash flows, and the standard deviation of the estimated residuals is a scale of earnings quality of the firms.…”

Section: Independent Variablementioning

confidence: 99%

See 1 more Smart Citation

Does earnings quality instigate financial flexibility? New evidence from emerging economy

Islam

Wang

Zulfiqar

et al. 2020

Economic Research-Ekonomska Istraživanja

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Purpose: This research aims to examine the empirical relationship between earnings quality and financial flexibility, i.e., how information related to earnings affects firms' cash levels in the emerging economies. Design/Methodology/Approach: To attain the research objectives, we used panel data for 18 years (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015)(2016)(2017) obtained from the CSMAR database. Statistical software STATA used for data analysis. Descriptive, multiple correlations, and unbalanced panel data analysis are used. Findings: Our empirical results negate the works conducted on the advanced economy showing that information related to earnings (Earnings Quality) is negatively associated with firms' Financial Flexibility irrespective of firms' characteristics, i.e., firms with profit or loss and firm's with R&D or without R&D expenditure. However, the firm's earnings quality, firm size, cash flows, financial constraints, dividends, and growth are the dominant predictor of financial flexibility. Moreover, the degree of dominance depends on the firm's specific characteristics. Research Limitations/Implications: This research has been conducted on the emerging Chinese market. For consistent and robust results, this research excluded the financial and other firms that possess different operational and regulatory attributes than the manufacturing firms. The study is useful for policymakers and managers to design their cash levels and avoid the hurdle of external finance or to accelerate their flexibility to raise money from an external source. Originality/Value: Previous research addressed the issue related to cost and benefit, information asymmetry, ownership concentration, and firm's propensity to cash holdings. A very little research conducted with earnings quality and cash holdings in the developed market (in Europe and the USA), and thus, for the first time, we address the issue of earnings quality and financial flexibility in the emerging economy.

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Cash holdings and earnings quality: evidence from the Main and Alternative UK markets

Cited by 57 publications

References 67 publications

The Determinants of Cash Holdings: Evidence from Listed Manufacturing Companies in Indonesia

The Determinants of Cash Holdings: Evidence from Listed Manufacturing Companies in Indonesia

Firm Size Does Matter: New Evidence on the Determinants of Cash Holdings

Does earnings quality instigate financial flexibility? New evidence from emerging economy

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