On the Sensitivity of Corporate Cash Holdings and Hedging to Cash Flows
نویسندگان
چکیده
We investigate a firm’s joint decision to hold cash and to hedge in the presence of financial constraints. The predictions are tested using a sample of manufacturing firms. We confirm the existing evidence of a positive sensitivity of cash holdings to cash flow for financially constrained firms. More importantly, we find a positive sensitivity of hedging to cash flow for constrained firms and, depending on the measure of financial constraints, for unconstrained firms as well. These results indicate that costly risk management activities, like other capital investments, are sensitive to funding resources.
منابع مشابه
Is cash negative debt? A hedging perspective on corporate financial policies
We model the interplay between cash and debt policies in the presence of financial constraints. While saving cash allows constrained firms to hedge against future cash flow shortfalls, reducing current debt – “saving borrowing capacity” – is a more effective way of securing investment in high cash flow states. This trade-off implies that constrained firms will allocate cash flows into cash hold...
متن کاملEffect of Business Groups Affiliation on Cash Holdings and Return on Equity
Nowadays, business groups play an outstanding role in financial markets. Corporates in the trading groups are able to use technology, capital, human resources, productions and services of other members in the group in addition to their own resources and capabilities. Thus, this paper studies the effect of business group affiliation on cash holdings and return on equity. The sample involves 94 c...
متن کاملThe Effect of Government Quality on Corporate Cash Holdings
We use China as a laboratory to test the effect of government quality on cash holdings. We build on, and extend, the existing literature on government expropriation and its interaction with firm-level agency problems by proposing a financial constraint mitigation argument. We find that firms hold less cash when local government quality is high, which is not consistent with the state expropriati...
متن کاملThe determinants of corporate cash management policies: Evidence from around the world
Article history: Received 28 August 2009 Received in revised form 2 December 2010 Accepted 8 December 2010 Available online 15 December 2010 We examine the determinants of corporate cash management policies across a broad sample of international firms. We document that firms in countries with strong legal protection of minority investors are more likely to decrease their cash holdings in respon...
متن کاملFinancial Flexibility and Corporate Cash Policy
Using variations in local real estate prices as exogenous shocks to corporate financing capacity, we investigate the causal effects of financial flexibility on cash policies of US firms. Building on this natural experiment, we find strong evidence that increases in real estate values lead to smaller corporate cash reserves, declines in the marginal value of cash holdings, and lower cash flow se...
متن کامل