Cyclicality of growth opportunities and the value of cash holdings

Corporate cash holdings in the shipping industry

“…Successions of good times with easy access to capital markets and bad times with limited capital market access are a key characteristic of the shipping industry. Supporting evidence in Ahrends, Drobetz, and Puhan (2016), we find that shipping firms with less procyclical expansion opportunities have a higher marginal value of cash, especially in bad times of the business cycle when external capital supply becomes scarce. We show that low correlation shipping firms have a higher marginal value of cash because they use it for investment and effectively have higher investments out of their cash holdings.…”

“…and Ahrends, Drobetz, and Puhan (2016), we calculate the cyclicality of growth opportunities by looking at the correlation of a firm's growth opportunities with the business cycle (Corr); in our case, we consider the five-year rolling correlation of a firm's Tobin's Q at time t and the ClarkSea index at time t-1. The idea is that the correlation between Tobin's Q and the ClarkSea index captures how firm-individual investment opportunities (Tobin's Q) move with the state of the shipping industry (ClarkSea index).…”

Investment committees and corporate cash holdings

“…Additionally, corporate investment declines significantly and particularly more extensively in firms characterised by low cash reserves (Duchin, Ozbas, and Sensory 2010). Consistent with the precautionary cash holding motive, (Ahrends, Drobetz, and Puhan 2016) show that cash represents a valuable source of investment funds for business growth opportunities during a period of economic and financial uncertainty. Given that the 2008 financial crisis was an unexpected event, Mitton (2002) documents that good corporate governance had considerable impact on firm performance during a period of extreme financial distress.…”

“…Firms with cash reserves are more likely to have growth opportunities (Opler et al 1999). Based on the precautionary cash holding motive, cash represents a valuable source of investment funds for business growth opportunities during a period of economic uncertainty (Ahrends, Drobetz, and Puhan 2016). Gillan and Starks (2000) find that both local and foreign institutional investors see corporate governance as an effective tool for improving the monitoring of a firm's cash.…”

The value relevance of bank cash Holdings: The moderating effect of board busyness

“…In addition, they are also able to utilise such amount of cash to undertake future profitable investment opportunities without having to access external market sources. In this way, banks can avoid excessive transaction costs on debt and/or equity issuances and reduce information asymmetry costs associated with equity issuances (Ahrends et al, 2018). Moreover, excess cash reserves in banking can mitigate financial distress if banks' activities fail in producing enough cash flow to support obligatory debt payments.…”