The joint determinants of cash holdings and debt maturity: the case for financial constraints

Brick, Ivan E.; Liao, Rose C.

doi:10.1007/s11156-016-0567-z

Cited by 35 publications

(28 citation statements)

References 64 publications

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“…Turning to the literature, numerous authors (Barclay et al 1995;Guedes and Opler 1996;Ozkan 2000;Scherr and Hulburt 2001;Elyasiani et al 2002;Jun and Jen 2005;Faulkender and Petersen 2006;Erhemjamts et al 2010;Dang 2011;Brick and Liao 2017) suggest that leverage, growth options, asset maturity, profitability, cash, tangibility and industry conditions are the primary determinants for debt maturity decisions. Chen et al (1999) and Gupta and Lee (2006) suggest that, in addition to growth options, 1 As an alternative channel to the creditor-driven force, there may be a firm-centric explanation: as internal board monitoring becomes stronger through increased board independence, the CEO is conditioned to take a longer-term view in her strategy, and so she decides on long-term investments.…”

Section: Introduction and Related Literaturementioning

confidence: 99%

Does internal board monitoring affect debt maturity?

Tosun

Senbet

2019

Rev Quant Finan Acc

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Using the Sarbanes-Oxley Act (SOX) as an exogenous shock to board structure, we identify internal monitoring via board independence and estimate its impact on corporate debt maturity. We introduce a triple difference-indifference approach. Additionally, we use a simultaneous equations model and address that decisions about leverage and debt maturity are simultaneous. We also incorporate new debt issuance in the model to ensure the causality in the relation is from internal monitoring towards the maturity of new debt. The findings provide support for agency theory. As board independence increases, internal monitoring becomes stronger, and good governance substitutes for external control over managers through short-term debt. Subsequently, firms have more long-maturity debt. The results are robust to controlling for other internal monitoring mechanisms, CEO characteristics, financial constraints, cash, bond ratings, yield, and debt seniority. The impact of increased board independence on debt maturity is more significant for conglomerates and cases where there is a greater need for internal control over managers, such as CEO duality, high GIM index, straight debt, less strict covenants, high intangibility, high free cash flow, no majority blockholders, high discretionary accruals, or high real earnings management. In further analyses, we rule out the concern that our results are due to better reporting of internal controls through SOX Section 404 or an increase in auditors' liability after SOX, rather than increased board independence.

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Section: Introduction and Related Literaturementioning

confidence: 99%

Does internal board monitoring affect debt maturity?

Tosun

Senbet

2019

Rev Quant Finan Acc

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“…More analytically, the cash flow ratio (CF) shows no significance to cash holdings, while the debt maturity variable (DEBTMT) has a positive causal effect on cash ratio when we replace industry with firm fixed effects. Following Brick and Liao (2017), our regression results show a significantly positive relationship between cash holdings and debt maturity. Thus, a firm's shorter (longer) maturity results in lower (higher) cash holdings; however, the economic significance of this result is minimal (Harford et al 2014).…”

Section: Determinants Of Cash Holdingsmentioning

confidence: 66%

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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“…The feasibility of this financing, considering the future applications of funds raised, will determine the degree of financial leverage. Brick and Liao (2017) report a positive relationship between debt maturity and cash retention, which also influences the financial leverage of companies.…”

Section: E N E R G Y S E C T O R a N D Underinvestmentmentioning

confidence: 99%

The effects of financial leverage and debt maturity on the investments of Brazilian electric sector companies

Kuroda

Moralles

Albuquerque

2019

RBGN

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Purpose -This research aimed to verify how companies of the electric energy segment choose levels of financial leverage and debt maturity in order to alleviate the underinvestment problem.Design/methodology/approach -A multiple linear regression was carried out in a dynamic panel model to verify the relevance of these and other variables to the companies' investments.Findings -The explanatory variable of investments carried out in the previous year was significant in the regressions, with a positive sign as expected. The financial leverage variable was significant and negative. The investments made by the companies are negatively related to indebtedness.Originality/value -It was identified that the maturity of debts of companies with low growth opportunities shows a negative relationship with the level of investment. Thus, in the electricity sector, reducing debt maturity can be considered as a substitute for reducing indebtedness in controlling underinvestment. Due to the relevance of this sector to the economy and the need for constant investments in it, understanding its financing dynamics provides an important contribution either to researchers or to managers of this industry.

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The joint determinants of cash holdings and debt maturity: the case for financial constraints

Cited by 35 publications

References 64 publications

Does internal board monitoring affect debt maturity?

Does internal board monitoring affect debt maturity?

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

The effects of financial leverage and debt maturity on the investments of Brazilian electric sector companies

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