Sustainable development in natural resources industry: is geopolitical risk a catalyst for corporate excess cash holdings?

With the outbreak of the Russia-Ukraine conflict, combined with the COVID-19 epidemic and the Federal Reserve's interest rate hike, geopolitical risks have increased sharply, which has brought great pressure on the sustainable development of natural resources industry. This study aims to discuss the impact of geopolitical risk (GPR) on corporate excess cash holdings in China's natural resources industry. The findings suggest that GRP can encourage enterprises in the natural resources industry to hold more excess cash. The findings still hold with a suite of robustness tests. The study also evidences that the above effect is more significant for state-owned enterprises, enterprises in the mining industry, and large-scale enterprises. Finally, further results show that with the increase of GPR, enterprises with strong risk-taking capacity tend to hold more excess cash, while enterprises registered in higher market-oriented regions are inclined to retain less excess cash. These findings can conduce to a deep understanding of the influence of GPR on corporate excess cash holdings and serve as a reference for policy-makers to adjust policies. © 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.

Cash holdings, ambiguity aversion, and investment puzzles

We consider a real options model with ambiguity to investigate how cash holdings and ambiguity aversion affect a firm's dynamic investments. First, we prove a unique positive ambiguity coefficient exists when ambiguity exceeds it such that entrepreneurs believe the project is "too valueless to invest in”. Second, the coupons demanded by creditors increase with ambiguity, and cash holdings reduce the ambiguity premium. Our research provides a new explanation as to why companies abandon investment and hold more cash under the influence of the COVID-19 pandemic.

Is it good to hold more cash before the pandemic? A case of Taiwanese firms.

The Covid-19 pandemic poses a great damage to firm performance worldwide. It raises the empirical question that if any factor can help firm perform better during the pandemic. In this study, we hypothesize that firms holding more cash before the pandemic can perform better during the pandemic year in 2020. We collect all listed firms from Taiwan Stock Exchange and test this hypothesis. Adopting a panel-data regression models with fixed effects, we find supportive evidence that pre-saved cash is valuable and can help firms perform better during the pandemic. Cash-rich firms will have a higher return on equity and return on assets. The economic significance is also non-trivial. Our study thus contributes to our understanding of how the pandemic can affect firm business and which lesson we can learn from this pandemic.

Stock price reactions to corporate cash holdings in mitigating predictable and unpredictable negative shocks

This paper explores how cash mitigates predictable and unpredictable adverse cash flow shocks to firms using the financial data of Japanese firms. We find that (i) cash had a positive impact on stock prices, and the impact was thoroughly reflected in stock prices before a predictable shock, (ii) after an unpredicted shock, the value of cash for the financially constrained firms is larger than that for the unconstrained firms, and (iii) the value of cash is similar between the two shocks for the unconstrained firms whereas the value is larger when the unpredicted shock occurs than when the predicted shock occurs for the constrained firms. © 2023 Elsevier B.V.

How do firms learn? Evidence from corporate cash holdings during the COVID‐19 pandemic

We examine the impact of COVID‐19 on US corporate cash holdings. Our findings suggest that greater pandemic exposure is associated with higher corporate cash holdings and that firms learn from prior experiences as they manage their cash policies. More specifically, the level of cash holdings in firms that experienced severe financial constraints during the 2008 credit crisis and firms with prior severe acute respiratory syndrome (SARS) and H1N1 exposure is significantly lower than that of firms with no prior epidemic or financial constraints experience. Overall, our findings support the learning behaviour of cash and contribute to corporate cash holdings literature by providing insights on the extent to which firms learn from prior experiences to manage their liquidity.

The impact of geopolitical risk on cash holdings policy: evidence from an emerging market

Purpose: This study aims to examine whether geopolitical risk (GPR) impacts the cash holdings behavior of 210 Turkish firms between 2005 and 2019. The authors choose Turkey as a country of interest because Turkey has an important place in terms of geographical location and serves as a bridge between Europe and Asia. Considering the prominent role that can play in decision-making processes, the authors thought that analyzing the impact of GPR on the cash holdings determinants of Turkish firms would be important and interesting. A widely accepted view is that GPRs play an important role in the economic decisions of emerging countries, such as Turkey. Design/methodology/approach: The authors examine models with fixed effects (FE), random effects (RE) and pooled ordinary least squares (POLS), respectively. First, the authors analyzed whether POLS, FE or RE would be the most appropriate model. According to the F-test and the Breusch–Pagan LM test, the FE and the RE models are more suitable than POLS. Then, according to the Hausman test results, the authors found that FE is this study's most appropriate model. After determining the validity of FE, the diagnostics tests of heteroscedasticity, autocorrelation and serial correlation tests are examined. Due to the presence of these problems, Driscoll and Kraay's (1998) test, which is the robust standard error estimator, is used. Findings: The authors find a positive relationship between GPR and cash holdings after controlling firm-level control variables. Firms faced with uncertainty prefer to hoard cash as a precautionary measure. In keeping with real options theory, firms postpone the investments of firms under uncertain conditions. The use of alternative measurements for GPR and cash holdings ensures the validity of our results. The authors' research reveals that investors and politicians should pay more attention to the influence of GPR on the determinants of the cash holdings of firms. Research limitations/implications: There are limitations for this study, but this study may provide opportunities for further studies. First, this study has only data from Turkey. This situation mitigates cross-country effects. In future studies, the number of firms, countries of focus and time span can be expanded. Second, this study does not consider the period of coronavirus disease 2019 (COVID-19) that increased risk and uncertainty worldwide. Further studies may consider the impact of COVID-19 and geographical risks relating to cash holdings. Third, the authors try to choose more relied independent and control variables. Practical implications: The authors' results provide some insights that are relevant to practitioners and policymakers. Managers need to consider GPR in managers' financial decisions based on managers' firm-specific characteristics. Turkish policymakers should target improving policies to alleviate the negative effects of GPRs. Regulators should postulate more encouraging policies to firms in an environment of GPR. Regulators can give firms more time to understand and analyze the GPRs and the impacts of GPRs to adjust regulators' day-to-day activities. Originality/value: There are fewer studies in the literature that analyzed the relationship between GPR and cash holdings. This study aims to full this gap in the literature. © 2023, Emerald Publishing Limited.

Determinants and effects of the use of COVID-19 business support programs in Japan

Using a survey of and financial data for Japanese small- and medium-enterprises (SMEs), this paper examines the determinants of firms' use of the business support programs provided by the Japanese government during the COVID-19 pandemic and their effect. With respect to the determinants, we obtain the following three findings: First, firms were more likely to have obtained subsidized loans, grants, or subsidies the more their sales had fallen during the pandemic, suggesting that funds flowed to firms that were adversely affected by the pandemic. Second, the likelihood that firms obtained funds was higher if their credit scores were lower or if they were classified as "zombies” and/or "low-return borrowers” before the pandemic, suggesting that the government programs also helped firms that had been under-performing before the pandemic. Third, firms were more likely to receive funds if they had a stronger relationship with their main bank before, suggesting that bank relationships play an important role in firms' access to government programs. Regarding the causal effects, we obtain the following three findings: First, except for the subsidies for employment adjustment, the support programs increased the cash holdings of user firms. Second, subsidized loans from private financial institutions lowered exit rates, while none of the programs had a significantly positive effect on employment relative to non-users (or in absolute terms). Third, the credit scores and profit-to-sales ratio of firms that used the support programs decreased and the likelihood of such firms being a zombie and/or a low-return borrower increased. Overall, our findings provide a cautionary tale in that the business support programs produced mixed results in that they may have prevented business failures but have also helped to prop up firms that are not viable in the long run. © 2022 Elsevier Inc.

Firms? sustainability, financial performance, and regulatory dynamics: Evidence from European firms

This study examines the association between firms' ESG reputational risk and financial per-formance under the EU regulatory policy changes and the COVID-19 period. Analyzing a panel of 1,816 European listed firms during the period 2007-2021, we document evidence that firms with lower ESG reputational risk have reduced information asymmetry, are less financial constrained and perform better. To establish causality, we design a quasi-natural experiment focusing on the 2014/95/EU directive of non-financial disclosing and the COVID-19 exogenous shock. Our findings are robust to several estimation techniques that address endogeneity, self-selection, and model sensitivity. Crown Copyright (c) 2022 Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).

The role of labor in cash holdings: Evidence from the supply-side impact of COVID-19.

This study investigates the dynamics of corporate cash holdings. We argue that firms in industries with low remote work feasibility have more incentives to hold cash during COVID-19 because of a precautionary saving motive or to retain their employees. The analysis results consistently show that firms less able to transition to remote work maintain higher cash holdings during COVID-19, and, more importantly, this effect is stronger for firms with more employees. Furthermore, we find that a higher share of female workers is associated more strongly with high levels of cash holdings for firms with low remote work capacity during COVID-19.

How do firms learn? Evidence from corporate cash holdings during the COVID‐19 pandemic

We examine the impact of COVID-19 on US corporate cash holdings. Our findings suggest that greater pandemic exposure is associated with higher corporate cash holdings and that firms learn from prior experiences as they manage their cash policies. More specifically, the level of cash holdings in firms that experienced severe financial constraints during the 2008 credit crisis and firms with prior severe acute respiratory syndrome (SARS) and H1N1 exposure is significantly lower than that of firms with no prior epidemic or financial constraints experience. Overall, our findings support the learning behaviour of cash and contribute to corporate cash holdings literature by providing insights on the extent to which firms learn from prior experiences to manage their liquidity.

State ownership, information asymmetry and cash holding: Impact of COVID-19 on Chinese-listed firms.

This study investigates the relationship between information asymmetry and cash holdings under the impact of the coronavirus disease 2019 (COVID-19) in China. It likewise explores how state ownership dominates their nexus, particularly during the pandemic. COVID-19 caused increases in cash holdings, and that the information asymmetry's effect on cash holdings is more pronounced over the COVID-19 period. Additionally, information asymmetry has a weaker effect on corporate cash holdings for state-owned enterprises (SOEs) under the pandemic. Overall, the study shows that state ownership moderates information asymmetry's impact on cash holdings and softens firms' precautionary motive for cash holdings during the pandemic.

COVID-19, firm characteristics and stock volatility: new evidence from the Indian tourism sector

Purpose This paper provides new evidence on Indian tourism firms by investigating the role of a firm's financial conditions typified by its leverage, earnings, size, cash holdings, and excess cash in moderating the pandemic-led idiosyncratic volatility in its stock prices. Design/methodology/approach The authors employ a firm-level panel comprising 82 publicly-listed tourism firms from India. Firm risk is estimated for the period beginning January 2020 to December 2020. Findings This paper finds non-linear effects of the pandemic on the idiosyncratic risk of the sample firms. Precisely, stock price volatility rises, but as the market absorbs this information, volatility subsides even as the disease spreads further. Further, lower levels of past debt and earnings and higher cash holdings ameliorate the pandemic's effects on tourism firms' risk. Contrasting the view that "excess" cash reflects poor operational performance, we show that "excess" cash firms are better prepared to face the adverse effects of the pandemic. Research limitations/implications This study's sample period fully encompasses the first wave of the pandemic (January-December 2020) of the novel coronavirus infection spread. Originality/value To the best of the authors' knowledge, this is the first study to assess the moderating effects of company fundamentals on the risk of Indian tourism firms. In doing so, the authors account for non-linear effects of the pandemic on firms' idiosyncratic volatility over time.

Excess cash holding and audit pricing: a further consideration of precautionary motives and other factors

Purpose This paper aims to investigate auditors' pricing of excess cash holdings and the variation in their pricing decisions in light of the precautionary motives of cash holdings and certain firm-specific conditions and during periods of crisis. Design/methodology/approach The authors conduct the two-stage-least-squares multivariate analysis using a sample of publicly listed non-financial US firms for the period 2003 to 2021 (42,413 firm-year observations). Findings The findings show a significant positive relationship between excess cash and audit fee. Next, the authors find that audit pricing of excess cash is significantly higher for firms with lower financial constraints. However, the authors do not find evidence to suggest that auditors price excess cash significantly higher for firms with lower hedging needs. In additional analysis, the authors find evidence to suggest that auditors charge significantly less for excess cash in firms that report financial loss and firms operating in industries with high litigation risk. The additional analysis also reveals excess cash is not positively and significantly priced by auditors as a result of the global financial crisis and Covid-19 pandemic. Originality/value Most researchers have analyzed excess cash holding from the perspective of managers, i.e. agency conflict or managerial prudence, while somewhat neglecting auditors' perception of the embedded risk of excess cash holdings. The authors provide new insights on auditors' perspective of excess cash holding and identify certain factors/situation/conditions that cause variation in the audit fee premium. The findings offer useful insights for managers and shareholders who are interested in assessing the effects of excess cash holdings policies on the audit fee premium.

Corporate payout, cash holdings, and the COVID-19 crisis: Evidence from the G-7 countries.

This paper examines the impact of the COVID-19 pandemic on the adjustments of dividends and share repurchases of publicly listed firms in the G-7 countries. Firms in the United Kingdom, Germany, France, and Italy experienced a widespread cut in dividends, while firms in the United States and Canada cut cash payout more via share repurchases, with Japanese firms in between. Corporate cash holdings helped mitigate the negative impact of COVID on payout adjustments, but the impact was less significant for European firms.

The Impact of Organizational Characteristics on Corporate Cash Holdings: Evidence from Saudi Arabia During COVID-19 Period

The article investigates the level and financial determinants of corporate cash holdings in the kingdom of Saudi Arabia during the COVID-19 period, at the beginning we reviewed the academic accounting literature to develop the theoretical framework of corporate cash holdings in terms of definition, motivations, and theories, then to conduct our empirical study we use a sample consisted of the largest 50 corporations listed in the Saudi stock market, going further, the corporate cash holdings mean was 14.96% during the study period, the article's results prove empirically a positive relation between corporate cash holdings, leverage, and ownership concentration among the sample corporations. and a negative relationship between corporate cash holdings, corporate size, cash flow, growth opportunities, working capital, and dividends, finally, the article results will add to the academic accounting literature and help researchers and corporations' management to understand the financial determinants, motivates, theories and the optimal amount of corporate cash holdings based on scientific evidence. © 2022 NSP Natural Sciences Publishing Cor.

Investment, payout, and cash management under risk and ambiguity

This study extends the theoretical model of dynamic investment, dividend payout, costly external financing, and liquidation for financially constrained firms by incorporating ambiguity. We demonstrate that ambiguity aversion induces a trade-off between the “bird-in-hand” effect and an amplified precautionary motive in determining firms’ cash management, which consequently affects firms’ investment, dividend payout, costly external financing, and liquidation decisions. Unlike the models considering risk only, we identify a non-monotonic relationship between the endogenous payout boundary and ambiguity aversion. Our model generates several new implications, including providing an explanation for the high cash holdings and speed-up of asset sales during the recent COVID-19 crisis.

Investment, payout, and cash management under risk and ambiguity

We extend a theoretical model of dynamic investment, dividend payout, costly external financing, and liquidation for financially constrained firms by incorporating ambiguity. Ambiguity aversion induces a trade-off between a “bird-in-the-hand” effect and an amplified precautionary motive in determining firms’ cash management, which consequently affects firms’ investment, dividend payout, costly external financing, and liquidation decisions. Unlike models considering risk only, we demonstrate a non-monotonic relationship between the endogenous payout boundary and ambiguity aversion. Moreover, we demonstrate that the relation between asset sales and ambiguity exhibits differently, depending on whether costly refinancing is available. Our model generates several new implications, including providing an explanation for the high cash holdings and speed-up of asset sales observed in the recent COVID-19 crisis.

Islamic Finance an alternative mode for short term financing - working capital management

Purpose This paper aims to review and compare the conventional and Islamic perspectives of working capital management (WCM) to devise the best option of financing for managing working capital (WC) in South Asia. The paper also aims to help the business world for running its operations more smoothly by devising an alternative source of financing especially during crises such as the global financial crisis 2008 and the COVID-19 pandemic. Design/methodology/approach The divergence approach is used for a critical analysis of existing literature to derive the best possible alternative to the conventional system of financing. Findings This paper identifies that Islamic financing is an appropriate mode of financing as compared to conventional financing for meeting WC requirements in South Asia. Furthermore, under Islamic financing, the best available alternative way for managing WC needs is the Mudarabah Islamic mode of financing. Research limitations/implications This is a theoretical paper and thus does not include empirical results. Practical implications This paper provides conventional and Islamic perspectives of WCM. The Islamic banks in South Asia may devise policies to encourage and convenience firms for using Mudarabah mode for meeting their WC needs instead of conventional sources. This paper also identifies that small and medium enterprises may be targeted by Islamic banks in Asian markets for providing funds for their smooth operations especially during a financial crisis when conventional banks refuse to lend. This will help managers to run businesses more efficiently and effectively especially during any kind of financial crisis in the future. Originality/value To the best of the author's knowledge, this is the first study that studies the relationship between WCM and Islamic financing in comparison to conventional financing. Although prior studies identify an alternative to conventional financing as Islamic financing, no one studied while considering the WC as the main variable. This paper informs practitioners and researchers about a "state of the art" Islamic perspective of WCM.

Panic Buy-Backs: Share Buy-Backs in a Pandemic

Share buy-backs are a capital control policy that can be applied to achieve a variety of outcomes across a broad range of circumstances. Buy-backs are not without controversy though, with a significant body of commentary surrounding the merits and desirability of permitting share buy-backs in corporate and financial practice. In the midst of the economic uncertainty arising from the COVID-19 pandemic, these discussions have been renewed with calls for buy-backs to be prevented for the duration of the pandemic if not banned outright even post-pandemic. The aim of this article is to examine these arguments and determine whether it is desirable to impose such restrictions on buy-backs.

Cash holdings and over-investments during covid 19 pandemic: The evidence from vietnam

Since the end of 2019, the world has been witnessing a severe Covid 19 pandemic. Right from the beginning, it reveals serious effects on many aspects of the economy. During this period, it is believed that firms tend to reduce their investments and therefore hold more cash to minimize potential risks. By studying 2,868 firm-year observations from non-financial listed firms in Vietnam from 2017 to 2020, this paper examines the impact of Covid 19 pandemic on cash holdings and overinvestment. Furthermore, the paper also makes the comparison between the cash holding level of overinvestment firms and non-overinvestment firms during Covid 19 pandemic. With the panel data, the research uses GLS, fixed effect, GMM and logit models to test appropriate regressions. The findings indicate that firms seem to have a tendency to hoard more cash and also reduce overinvestments during Covid 19 pandemic that are consistent with the theory of precautionary motive. This research further shows that overinvestment firms still reserve less cash than other firms during the pandemic. This paper contributes to the current literature with the investigation of both corporate cash holdings and overinvestment during the Covid 19 pandemic. However, the research time period is only from 2017 to 2020, which might be a limitation of this paper. © 2021 by authors.