دارایی های نقدی و کیفیت سود
Abstract
1- Introduction and motivation
2- Literature review and research questions
3- Sample, methodology and summary statistics
4- Empirical results
5- Conclusions
References
Abstract
In this paper we investigate the importance of earnings quality as a determinant of cash holdings by companies, exploring among other factors the nature of earnings (positive or negative) and the level of financial disclosure, proxied by the market where firms are listed (Main or AIM-Alternative Investment Markets in the United Kingdom). Based on a sample covering the period of 1998–2015, we provide evidence that as earnings quality decreases, firms tend to hold more cash except when firms are facing losses in both Main and AIM markets. In addition, we document that information conveyed by earnings quality is a more important determinant of cash reserve levels for Main Market than for AIM firms (where the level of financial disclosure and oversight is lower). Overall, our evidence suggests that cash balances are positively influenced by the presence of greater information asymmetries arising from poor earnings quality but also from the existence of lower levels of regulatory oversight and the occurrence of losses, both of which reduce the importance of earnings quality as a determinant of cash levels. Our results also imply that companies with higher levels of earnings opaqueness seem to benefit from having higher cash holdings so as to avoid dependence from costly external funding.
Introduction and motivation
Prior research has shown that companies may set their levels of cash holdings by trading off the costs and benefits of larger liquidity reserves (Miller & Orr, 1966). Costs that have been analysed typically include low returns and possible tax disadvantages of cash reserves (Bigelli & Sánchez-Vidal, 2012) while usual benefits that have been identified are the reduction in transaction costs that would exist in the case of new capital raising or the liquidation of assets, the reduced likelihood of default, the avoidance of possibly expensive funding or even the shortage of financing alternatives (Kim, Mauer, & Sherman, 1998; Opler, Pinkowitz, Stulz, & Williamson, 1999). Reasons for a costly external financing relate in general to the presence of information asymmetries between firms and investors (Myers & Majluf, 1984) or to the existence of agency problems associated with underinvestment and asset substitution (Jensen & Meckling, 1976). Additionally, managers may pursue their own interests by maintaining large amounts of cash on companies' balance sheets so as to keep sub-optimal levels of net debt, risk and/or dividends in comparison to those desired by shareholders (Easterbrook, 1984).