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Author: Niclas Andrén Publisher: ISBN: Category : Languages : en Pages : 33
Book Description
According to a recent conjecture in the literature, earnings have become a poorer proxy for cash flow from operations over time. We find that since 1988, when cash flow statements started to be consistently reported in Compustat, the cash effectiveness of earnings has actually increased for a large sample of US manufacturing firms. This occurs despite the introduction of fair value accounting and increasing accounting accruals during the last three decades. The evidence suggests that this puzzle is explained by more efficient working capital management. Also contrary to the conjecture, using more comprehensive measures of cash flow does not restore the investment-cash flow sensitivity, which continues to be around 0.05 in more recent periods. We end by noting that the investment model used in the literature can be enhanced by including accruals, since it leads to a more precise estimation of cash flow.
Author: Niclas Andrén Publisher: ISBN: Category : Languages : en Pages : 33
Book Description
According to a recent conjecture in the literature, earnings have become a poorer proxy for cash flow from operations over time. We find that since 1988, when cash flow statements started to be consistently reported in Compustat, the cash effectiveness of earnings has actually increased for a large sample of US manufacturing firms. This occurs despite the introduction of fair value accounting and increasing accounting accruals during the last three decades. The evidence suggests that this puzzle is explained by more efficient working capital management. Also contrary to the conjecture, using more comprehensive measures of cash flow does not restore the investment-cash flow sensitivity, which continues to be around 0.05 in more recent periods. We end by noting that the investment model used in the literature can be enhanced by including accruals, since it leads to a more precise estimation of cash flow.
Author: Huafeng (Jason) Chen Publisher: ISBN: Category : Languages : en Pages : 49
Book Description
Investment-cash flow sensitivity has declined and disappeared, even during the 2007-2009 credit crunch. If one believes that financial constraints have not disappeared, then investment-cash flow sensitivity cannot be a good measure of financial constraints. The decline and disappearance are robust to considerations of Ramp;D and cash reserves, and across groups of firms. The information content in cash flow regarding investment opportunities has declined, but measurement error in Tobin's q does not completely explain the patterns in investment-cash flow sensitivity. The decline and disappearance cannot be explained by changes in sample composition, corporate governance, or market power; and remain a puzzle.
Author: Steven N. Kaplan Publisher: ISBN: Category : Cash flow Languages : en Pages : 24
Book Description
Kaplan and Zingales [1997] provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen [1999] criticize those findings. In this note, we explain how the Fazzari et al. [1999] criticisms are either very supportive of the claims in Kaplan and Zingales [1997] or incorrect. We conclude with a discussion of unanswered questions.
Author: Thomas Koch Publisher: ISBN: Category : Languages : en Pages :
Book Description
Financial constraints are a main driver hindering firms' growth potential. The pecking order suggests that firms rely on internal funds when they are available to finance their investment expenditures. If a firm faces larger financial constraints, it is even more dependent on the availability of internally generated cash flow. On the empirical side, investment-cash flow sensitivities and cash-cash flow sensitivities are used to test for the presence of financial constraints. In this paper, we use a large data set and analyze different, sometimes conflicting findings in the literature. We find that (1), the regression results are very sensitive to the splitting scheme used to classify firms into financially constrained and unconstrained firms and results may be different according to the regression technique used, (2), the inclusion of distressed firm years (negative cash flow years) in the regressions changes results significantly and can at least partly explain previous opposite results concerning the usefulness of ICFS and CFSC, (3), cash flow matters, (4), ICFS and CFSC are declining over time and even vanish for some regression specifications in recent years and finally, (5), the relationship between cash flow and investment and to a lower extent the relationship between cash flow and changes in cash holdings are U-shaped.
Author: Marialuz Moreno Badia Publisher: International Monetary Fund ISBN: 1451872194 Category : Business & Economics Languages : en Pages : 41
Book Description
The global financial crisis has reopened the debate on the potential spillover effects from the financial sector to the real economy. This paper adds to that debate by providing new evidence on the link between finance and firm-level productivity, focusing on the case of Estonia. We contribute to the literature in two important respects: (i) we look explicitly at the role of financial constraints; and (ii) we develop a methodology that corrects for the misspecification problems of previous studies. Our results indicate that young and highly indebted firms tend to be more financially constrained. Overall, a large number of firms shows some degree of financial constraints, with firms in the primary sector being the most constrained. More importantly, we find that financial constraints do not lower productivity for most sectors.
Author: Mr.Vadim Khramov Publisher: International Monetary Fund ISBN: 1475554273 Category : Business & Economics Languages : en Pages : 28
Book Description
This paper uses the financial crisis of 2008 as a natural experiment to demonstrate that when measuring investment-cash flow sensitivity, the value of a firm's assets that can be used as collateral should be taken into account. Using panel data on U.S. firms from 1990 to 2011, it was found that the share of physical capital in assets has a strong influence on investment-cash flow sensitivity, which decreased substantially after the crisis when banks changed their expectations about the value of assets on firms' balance sheets. This paper deepens our understanding of firms' investment behavior.
Author: Robert E. Carpenter Publisher: ISBN: Category : Languages : en Pages : 12
Book Description
Cummins, Hasset, and Oliner(American Economic Review, 2006) construct a new measure of fundamentals, and show that the positive cash flow effects typically found in investment-Q models disappear when traditional Q is replaced with their new measure. Their results are not robust to small changes in their specification or in the dataset used to estimate their model. The explanatory power of cash flow does not disappear when replacing traditional Q with their new measure of Q; it is never there to begin with. Investment's lack of sensitivity to cash flow may be because their data is biased towards firms with positive cash flow (it is negative for only 242 observations of 11431). This bias and our results mute their argument that the positive cash-flow effects obtained in such models may reflect a failure to control properly for fundamentals rather than the presence of financial constraints.
Author: Gustavo Grullon Publisher: ISBN: Category : Languages : en Pages : 39
Book Description
Capital expenditures by the top 100 firms make up more than 60% of aggregate investment by publicly traded firms, and explain most of the variation in aggregate net fixed private non-residential investment. Surprisingly, these firms have the highest investment-cash flow sensitivity in the economy, despite being the least financially constrained. Further, contrary to the trend among smaller firms, the investment-cash flow sensitivity of the top capital spenders has not disappeared over time. For these firms, we find that cash flows provide better information about future investment opportunities than proxies for Tobin's q. In general, the results from our granular approach indicate that most of the existing evidence based on the behavior of the average firm does not apply to the firms that drive most of the aggregate fluctuations in investment.
Author: Kose John Publisher: Emerald Group Publishing ISBN: 0857249150 Category : Business & Economics Languages : en Pages : 210
Book Description
Presents research on corporate governance from a number of countries across the world, including the United States, Spain, Malaysia, Israel and others. This title examines many important corporate governance mechanisms, such as board characteristics, ownership structure, legal protection of shareholders, and annual general meetings.
Author: Niclas Andrén
Author: Niclas Andrén
Author: Huafeng (Jason) Chen
Author: Steven N. Kaplan
Author: Thomas Koch
Author: Marialuz Moreno Badia
Author: Mr.Vadim Khramov
Author: Robert E. Carpenter
Author: Gustavo Grullon
Author: Kose John
Author: John W. Diamond