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

5 Citations (Scopus)

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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
Externally published	Yes

Bibliographical note

The final publication is available at Springer via http://dx.doi.org/ 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.

Keywords

Diversification
Liquidity
Free cash flow
Financing cash flow
Financial management

Access to Document

10.1007/s11156-016-0565-1

Post-printAccepted author manuscript, 0.98 MBLicence: CC BY

Thang Nguyen
- Research Centre for Financial & Corporate Integrity - Assistant Professor Research - Finance
Person: Teaching and Research

Cite this

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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 = "The final publication is available at Springer via http://dx.doi.org/ 10.1007/s11156-016-0565-1 Copyright {\textcopyright} 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. ",

year = "2017",

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

language = "English",

volume = "48",

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AU - Cai, Charlie X.

AU - McColgan, Patrick

N1 - The final publication is available at Springer via http://dx.doi.org/ 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.

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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

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JO - Review of Quantitative Finance and Accounting

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IS - 3

ER -

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

Abstract

Bibliographical note

Keywords

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Thang Nguyen

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