Earnings Quality Effect on Corporate Excess Cash Holdings and Their Marginal Value

Shin, Minshik; Kim, Sooeun; Shin, Jongho; Lee, Jaeik

doi:10.1080/1540496x.2016.1273767

Cited by 18 publications

(25 citation statements)

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“…Regarding the effect of conservatism on CASH, there are two opinions, the first opinion supports a positive association between them, since some prior studies interested in International Journal of Accounting and Financial Reporting ISSN 2162-3082 2019 determining reasons of conservatism existence, one of them is decreasing information asymmetry (IA) (Watts, 2003, Kim et al, 2013, Machdar & Mayangsari, 2015, Balakrishnan et al, 2016, Atlawel and Shaheen, 2017and Isniawati et al, 2018, since conservatism reduces both IA and morally hazardous agency conflicts between managers and less informed other related parties (Opler et al, 1999), this reduction pushes these parties to decrease cost of capital due to mitigating interests' conflicts between owners, managers and debt holders as a result from decreasing risk related to pay excessive dividends (Ahmed et al, 2002, Ball and Shivakumar, 2005, and Lara et al, 2011. In the other dimension, according to transaction model also, there is a negative association between IA and CASH, since increasing IA due to decreasing conservatism decreases shareholders trust in management, which pushes to increase the cost of capital (Ahmed et al, 2002, Chung et al, 2015and Shin et al, 2017, management is forced to decrease CASH to cover the increase in the cost of capital. Dittmar and Mahrt-Smith (2007) confirms this result when they mention that firms with good shareholders protection rights have half CASH of firms with poor shareholder protection rights.…”

Section: The Association Between Accounting Conservatism and Cash Holmentioning

confidence: 99%

The Moderating Effect of Firm Characteristics on the Association Between Accounting Conservatism and Cash Holdings

Soliman

2019

ijafr

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Recent studies are interested in the determinants of cash holdings (CASH), some of these studies focus on conservatism, as one of these determinants. In light of a debate on the nature of the association between conservatism and CASH, this paper discusses and investigates the answers for three questions, the first question about the direct association between conservatism and CASH, the second question about the moderating effect of firm characteristics on this association, the third question about the effect of adopting Egyptian Accounting Standards (EAS) since 2016 on the last association. This paper focuses on Egyptian listed firms in Egyptian Stock Exchange (EGX), especially EGX 100, for six years period from 2013 to 2018 for 11 main sectors, 125 firms and 703 unbalances panel data observations. The findings indicate that (1) conservatism has a negative effect on CASH, (2) only firm size has a moderating and positive effect on the association between conservatism and CASH, (3) firm leverage, firm growth opportunity, and firm managerial ownership do not have a moderating effect on the last association. (4) Adopting EAS in 2016 by Egyptian listed firms gives the management of these firms' suitable chances to control CASH using its association with conservatism.

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Section: The Association Between Accounting Conservatism and Cash Holmentioning

confidence: 99%

The Moderating Effect of Firm Characteristics on the Association Between Accounting Conservatism and Cash Holdings

Soliman

2019

ijafr

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“…Based on these studies, especially in developing countries, like Egypt, the hypothesis is: H1: accounting conservatism has a significant association with information asymmetry. Chung et al (2015) analyze the effect of IA on CASH, since firms with higher IA have smaller CASH, Shin et al (2017) use sample of Korea listed firms, they find that firms with poor earnings quality are more likely to accumulate excess CASH, perhaps in an attempt to buffer themselves from IA problems. Joudi et al (2019) use sample of 106 listed firms of the Tehran stock Exchange (TSE) from 2007 to 2016 to investigate the role of corporate governance quality on the association between CASH and firm values in presence of IA, they find the higher quality of corporate governance would have a positive effect on the relationship between CASH and firm values.…”

Section: Accounting Conservatism and Information Asymmetry (Ia)mentioning

confidence: 99%

“…The other point of view stresses the existence of a positive relationship between information asymmetry and increase in cash, given that information asymmetry reduces for both conservatism and shareholders confidence in administration, which may push in the direction of increasing the cost of capital (Shin et al, 2017). Administration may consider that it is forced to reduce cash due to the increase in the cost of capital.…”

Section: Introductionmentioning

confidence: 99%

Accounting Conservatism, Information Asymmetry and Cash Holdings

Shehata

Rashed

2021

jabminternational

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This paper focuses on explore the association between accounting conservatism and cash holding through a mediating effect of information asymmetry (IA) for Egyptian firms listed in EGX 100 within the period between 2013 -2018 through 124 firms with 703 firm-observations. The results indicates that (1) conservatism doesn’t have an enormous effect on information asymmetry, (2) information asymmetry doesn’t have a serious effect on cash holding, (3) there’s not any mediation role of information asymmetry within the relationship between conservatism and cash, (4) conservatism effect a negatively on cash holding

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“…Anecdotal evidence shows that financial flexibility measured in terms of the level of cash holding depends on the trading-off the costs and benefits of higher liquidity position (Miller & Orr, 1966;Shin, Kim, Shin, & Lee, 2018). Generally, costs typically include the possibility of tax disadvantage and low returns on cash reserves (Bigelli & S anchez-Vidal, 2012).…”

Section: Introductionmentioning

confidence: 99%

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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Earnings Quality Effect on Corporate Excess Cash Holdings and Their Marginal Value

Cited by 18 publications

References 50 publications

The Moderating Effect of Firm Characteristics on the Association Between Accounting Conservatism and Cash Holdings

The Moderating Effect of Firm Characteristics on the Association Between Accounting Conservatism and Cash Holdings

Accounting Conservatism, Information Asymmetry and Cash Holdings

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

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