How firms manage their cash flows: an examination of diversification’s effect

Thang Nguyen; Charlie X. Cai; Patrick Mccolgan

doi:10.1007/s11156-016-0565-1

How firms manage their cash flows: an examination of diversification’s effect

Thang Nguyen, Charlie X. Cai, Patrick Mccolgan

Research output: Contribution to journal › Article › peer-review

364 Downloads (Pure)

Abstract

We extend recently documented evidence that diversified firms hold significantly less cash than specialized firms to consider differences in how diversified and specialized firms adjust their cash flows to achieve their target cash balance. We find that diversified firms have higher free cash flows as a result of equal operating cash flows and lower investment in comparison to specialized firms. Diversified firms save less cash by placing less reliance on external financing; by issuing less debt and equity, and distributing higher cash dividends. Our findings support the hypothesis that diversified firms are able to hold less precautionary cash as they are in better position to finance investment opportunities internally from operating cash flows.

Original language	English
Pages (from-to)	701-724
Number of pages	24
Journal	Review of Quantitative Finance and Accounting
Volume	48
Issue number	3
Early online date	25 Mar 2016
DOIs	https://doi.org/10.1007/s11156-016-0565-1
Publication status	Published - Apr 2017

Keywords

diversification
liquidity
free cash flow
financing cash flow
financial management

Access to Document

10.1007/s11156-016-0565-1

NGUYEN_2016_cright_RQFA_How firms manage their cash flows
This is an Accepted Manuscript of an article published in Review of Quantitative Finance and Accounting. The final publication is available at Springer via http://dx.doi.org/10.1007/s11156-016-0565-1
Accepted author manuscript (Post-print), 573 KB

Cite this

@article{602935a9a6cc4065a41e0d21b6284d5f,

title = "How firms manage their cash flows: an examination of diversification{\textquoteright}s effect",

abstract = "We extend recently documented evidence that diversified firms hold significantly less cash than specialized firms to consider differences in how diversified and specialized firms adjust their cash flows to achieve their target cash balance. We find that diversified firms have higher free cash flows as a result of equal operating cash flows and lower investment in comparison to specialized firms. Diversified firms save less cash by placing less reliance on external financing; by issuing less debt and equity, and distributing higher cash dividends. Our findings support the hypothesis that diversified firms are able to hold less precautionary cash as they are in better position to finance investment opportunities internally from operating cash flows.",

keywords = "diversification, liquidity, free cash flow, financing cash flow, financial management",

author = "Thang Nguyen and Cai, {Charlie X.} and Patrick Mccolgan",

note = "embargo 18 mths This is an Accepted Manuscript of an article published in Review of Quantitative Finance and Accounting. The final publication is available at Springer via http://dx.doi.org/10.1007/s11156-016-0565-1",

year = "2017",

month = apr,

doi = "10.1007/s11156-016-0565-1",

language = "English",

volume = "48",

pages = "701--724",

journal = "Review of Quantitative Finance and Accounting",

issn = "0924-865X",

publisher = "Springer New York",

number = "3",

}

TY - JOUR

T1 - How firms manage their cash flows

T2 - an examination of diversification’s effect

AU - Nguyen, Thang

AU - Cai, Charlie X.

AU - Mccolgan, Patrick

N1 - embargo 18 mths This is an Accepted Manuscript of an article published in Review of Quantitative Finance and Accounting. The final publication is available at Springer via http://dx.doi.org/10.1007/s11156-016-0565-1

PY - 2017/4

Y1 - 2017/4

N2 - We extend recently documented evidence that diversified firms hold significantly less cash than specialized firms to consider differences in how diversified and specialized firms adjust their cash flows to achieve their target cash balance. We find that diversified firms have higher free cash flows as a result of equal operating cash flows and lower investment in comparison to specialized firms. Diversified firms save less cash by placing less reliance on external financing; by issuing less debt and equity, and distributing higher cash dividends. Our findings support the hypothesis that diversified firms are able to hold less precautionary cash as they are in better position to finance investment opportunities internally from operating cash flows.

AB - We extend recently documented evidence that diversified firms hold significantly less cash than specialized firms to consider differences in how diversified and specialized firms adjust their cash flows to achieve their target cash balance. We find that diversified firms have higher free cash flows as a result of equal operating cash flows and lower investment in comparison to specialized firms. Diversified firms save less cash by placing less reliance on external financing; by issuing less debt and equity, and distributing higher cash dividends. Our findings support the hypothesis that diversified firms are able to hold less precautionary cash as they are in better position to finance investment opportunities internally from operating cash flows.

KW - diversification

KW - liquidity

KW - free cash flow

KW - financing cash flow

KW - financial management

U2 - 10.1007/s11156-016-0565-1

DO - 10.1007/s11156-016-0565-1

M3 - Article

SN - 0924-865X

VL - 48

SP - 701

EP - 724

JO - Review of Quantitative Finance and Accounting

JF - Review of Quantitative Finance and Accounting

IS - 3

ER -

How firms manage their cash flows: an examination of diversification’s effect

Abstract

Keywords

Access to Document

Fingerprint

Cite this