The asymmetry in firms’ mechanisms of cash holdings adjustments: evidence from the G-5 economies

Cuong Nguyen

Research output: Contribution to journalArticle

Abstract

Using a G-5 country sample (France, Germany, Japan, the UK, and the US) from 1980 to 2007, I find new evidence of the asymmetry in firms’ mechanisms of cash holdings adjustments. They undertake different approaches to move toward their target cash holdings levels conditional on whether they have below- or above-target cash holdings. Specifically, firms with above-target cash holdings adjust mainly via changes in cash flows from financing and investing. They generally reduce their levels of equity proceeds, net debt issues and fixed asset disposal but increase their levels of equity repurchases, dividend payout, net assets from acquisitions, portfolio and short-term investments, and capital expenditures. However, firms with below-target cash holdings adjust mainly via changes in operating cash flows, i.e., they increase their levels of funds from operations but reduce their levels of working capital. The mechanisms undertaken by firms with above-target cash holdings allow them to adjust toward their target cash holdings relatively faster than those with below-target cash holdings, as they possibly incur lower costs than the mechanisms experienced by firms with below-target cash holdings. The results highlight the importance of understanding the asymmetry in firms’ mechanisms of cash holdings adjustments when analyzing how they adjust toward their target cash holdings levels.
LanguageEnglish
Pages429-463
Number of pages35
JournalReview of Quantitative Finance and Accounting
Volume53
Issue number2
Early online date27 Aug 2018
DOIs
Publication statusPublished - Aug 2019

Fingerprint

Asymmetry
Cash holdings
Equity
Japan
Cash flow
Germany
Disposal
Financing
Costs
France
Capital expenditures
Debt
Assets
Working capital
Repurchase
Fixed assets
Dividend payout
Operating cash flows
Investing

Cite this

@article{e3b38f918ded46359254e0cca5e64f5b,
title = "The asymmetry in firms’ mechanisms of cash holdings adjustments: evidence from the G-5 economies",
abstract = "Using a G-5 country sample (France, Germany, Japan, the UK, and the US) from 1980 to 2007, I find new evidence of the asymmetry in firms’ mechanisms of cash holdings adjustments. They undertake different approaches to move toward their target cash holdings levels conditional on whether they have below- or above-target cash holdings. Specifically, firms with above-target cash holdings adjust mainly via changes in cash flows from financing and investing. They generally reduce their levels of equity proceeds, net debt issues and fixed asset disposal but increase their levels of equity repurchases, dividend payout, net assets from acquisitions, portfolio and short-term investments, and capital expenditures. However, firms with below-target cash holdings adjust mainly via changes in operating cash flows, i.e., they increase their levels of funds from operations but reduce their levels of working capital. The mechanisms undertaken by firms with above-target cash holdings allow them to adjust toward their target cash holdings relatively faster than those with below-target cash holdings, as they possibly incur lower costs than the mechanisms experienced by firms with below-target cash holdings. The results highlight the importance of understanding the asymmetry in firms’ mechanisms of cash holdings adjustments when analyzing how they adjust toward their target cash holdings levels.",
keywords = "Cash holdings, Adjustment mechanisms, Adjustment costs, Asymmetric adjustments",
author = "Cuong Nguyen",
year = "2019",
month = "8",
doi = "10.1007/s11156-018-0754-1",
language = "English",
volume = "53",
pages = "429--463",
journal = "Review of Quantitative Finance and Accounting",
issn = "0924-865X",
publisher = "Springer New York",
number = "2",

}

The asymmetry in firms’ mechanisms of cash holdings adjustments : evidence from the G-5 economies. / Nguyen, Cuong.

In: Review of Quantitative Finance and Accounting, Vol. 53, No. 2, 08.2019, p. 429-463.

Research output: Contribution to journalArticle

TY - JOUR

T1 - The asymmetry in firms’ mechanisms of cash holdings adjustments

T2 - Review of Quantitative Finance and Accounting

AU - Nguyen, Cuong

PY - 2019/8

Y1 - 2019/8

N2 - Using a G-5 country sample (France, Germany, Japan, the UK, and the US) from 1980 to 2007, I find new evidence of the asymmetry in firms’ mechanisms of cash holdings adjustments. They undertake different approaches to move toward their target cash holdings levels conditional on whether they have below- or above-target cash holdings. Specifically, firms with above-target cash holdings adjust mainly via changes in cash flows from financing and investing. They generally reduce their levels of equity proceeds, net debt issues and fixed asset disposal but increase their levels of equity repurchases, dividend payout, net assets from acquisitions, portfolio and short-term investments, and capital expenditures. However, firms with below-target cash holdings adjust mainly via changes in operating cash flows, i.e., they increase their levels of funds from operations but reduce their levels of working capital. The mechanisms undertaken by firms with above-target cash holdings allow them to adjust toward their target cash holdings relatively faster than those with below-target cash holdings, as they possibly incur lower costs than the mechanisms experienced by firms with below-target cash holdings. The results highlight the importance of understanding the asymmetry in firms’ mechanisms of cash holdings adjustments when analyzing how they adjust toward their target cash holdings levels.

AB - Using a G-5 country sample (France, Germany, Japan, the UK, and the US) from 1980 to 2007, I find new evidence of the asymmetry in firms’ mechanisms of cash holdings adjustments. They undertake different approaches to move toward their target cash holdings levels conditional on whether they have below- or above-target cash holdings. Specifically, firms with above-target cash holdings adjust mainly via changes in cash flows from financing and investing. They generally reduce their levels of equity proceeds, net debt issues and fixed asset disposal but increase their levels of equity repurchases, dividend payout, net assets from acquisitions, portfolio and short-term investments, and capital expenditures. However, firms with below-target cash holdings adjust mainly via changes in operating cash flows, i.e., they increase their levels of funds from operations but reduce their levels of working capital. The mechanisms undertaken by firms with above-target cash holdings allow them to adjust toward their target cash holdings relatively faster than those with below-target cash holdings, as they possibly incur lower costs than the mechanisms experienced by firms with below-target cash holdings. The results highlight the importance of understanding the asymmetry in firms’ mechanisms of cash holdings adjustments when analyzing how they adjust toward their target cash holdings levels.

KW - Cash holdings

KW - Adjustment mechanisms

KW - Adjustment costs

KW - Asymmetric adjustments

UR - https://www.scopus.com/record/display.uri?eid=2-s2.0-85053064135&origin=resultslist&sort=plf-f&src=s&st1=The+asymmetry+in+firms%27+mechanisms+of+cash+holdings+adjustments&st2=&sid=07b931b3d694e267f625dc8cdac92f8b&sot=b&sdt=b&sl=78&s=TITLE-ABS-KEY%28The+asymmetry+in+firms%27+mechanisms+of+cash+holdings+adjustments%29&relpos=1&citeCnt=0&searchTerm=

U2 - 10.1007/s11156-018-0754-1

DO - 10.1007/s11156-018-0754-1

M3 - Article

VL - 53

SP - 429

EP - 463

JO - Review of Quantitative Finance and Accounting

JF - Review of Quantitative Finance and Accounting

SN - 0924-865X

IS - 2

ER -