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

Thang Nguyen, Charlie X. Cai, Patrick McColgan

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)
31 Downloads (Pure)


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 languageEnglish
Pages (from-to)701-724
Number of pages24
JournalReview of Quantitative Finance and Accounting
Issue number3
Early online date25 Mar 2016
Publication statusPublished - Apr 2017
Externally publishedYes

Bibliographical note

The final publication is available at Springer via 10.1007/s11156-016-0565-1

Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders.


  • Diversification
  • Liquidity
  • Free cash flow
  • Financing cash flow
  • Financial management


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