Studying the relationship between asymmetric cash flow sensitivity and cash retention in companies listed on the Tehran Stock Exchange with an emphasis on financial constraints.

Number of pages: 171 File Format: word File Code: 29843
Year: 2014 University Degree: Master's degree Category: Librarianship
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  • Summary of Studying the relationship between asymmetric cash flow sensitivity and cash retention in companies listed on the Tehran Stock Exchange with an emphasis on financial constraints.

    Abstract:

    The aim of this research is to investigate the relationship between the sensitivity of asymmetric cash flow and cash retention in companies, with an emphasis on financial constraints. This research is a library and analytical-causal study and is based on panel data analysis. In this research, the financial information of 112 companies admitted to the Tehran Stock Exchange during the period from 2007 to 2010 has been examined (448 companies - year). 20 Spss, 7 Eviews and 16 Minitab software were used to analyze the results of the research. According to the analyzes carried out in connection with the confirmation of the first hypothesis of the research, we came to the conclusion that there is a significant and direct relationship between the sensitivity of cash flow and cash retention, that is, with the increase of cash flows in a positive direction to a certain ratio, the level of cash retention of companies will increase. Also, the results of the research in connection with the confirmation of the second hypothesis indicated that there is a significant and inverse relationship between the degree of asymmetry of cash flow sensitivity and cash retention, i.e. the greater the asymmetry in the sensitivity of cash and positive cash flows, the level of cash retention of companies will decrease with a certain ratio. Asymmetry, panel data.

    Introduction

    Cash is one of the important and vital resources of any economic unit and it plays a fundamental role in many financial decisions and investment plan evaluation models and some traditional and new analyzes of financial management. A review of the accounting literature also shows that there is a general agreement about the importance of cash flows. In the accounting and financial theoretical framework of different countries (which determines the purpose, task and limitations of accounting and financial reporting), special attention has been paid to cash flows. Special attention has been paid to cash flows to such an extent that in most countries, including Iran, this importance has been expressed as one of the goals of accounting and financial reporting, because theoretically, cash flow is used in decision-making, such as assessing the risk related to the amount and time of the loan, predicting the amount of credit and valuation of the company, and providing additional information for the stock market. It can be useful.

    1-2) Statement of the problem

    Most previous studies have addressed why companies keep cash and have reached some results in this direction (Pinkotz et al.[1], 2006; Kalkova and Lins[2], 2007; Floy et al.[3], 2007; Harford et al., 2009; Drubetz et al., 2010). Prudent and conservative motives indicate that companies use cash assets to finance new investments or meet short-term obligations when they expect a reverse cash flow shock (Falkender and Wong[9], 2006; Milo et al.[10], 2008). Keeping liquid assets in nature helps to avoid foreign financing when liquidity shortages occur (Lamont et al. [11], 2001; Kalkieva and Lins [12], 2007; Bao et al., 2012). For example, Bates et al. (2009) [13] managed to establish a relationship between the increase in liquidity growth and the increasing demand for liquidity to adjust the cash flow shock. Almeida et al. (2004) [14] and Riddick and Whited (2009) [15] presented conflicting results about the sensitivity of companies' cash flows to cash [16]. Therefore, we will use the completed experimental model (Bao et al., 2012) [17], to prove the conclusion of the research conducted by Riddick and Whited (2009), that the sensitivity of cash flows to cash holdings[18] is often negative, and instead of cash, we will use the sum of cash and short-term investments (Hardin et al.[19], 2009), which henceforth holds cash We call criticism, we will use it. In addition, our assumption in this research is that the sensitivity of cash flows to keeping cash is asymmetrical[20]. This asymmetry can be rooted in different reasons; Among these reasons, we can mention binding project contracts [21] (forced), not expressing unpleasant news [22] and agency costs [23].Using the examples of companies listed on the Tehran Stock Exchange between 1385 and 1390 (six-year period), we will prove that the sensitivity of cash flows is negative when the company is in an environment with positive cash flow [24], and this is consistent with the findings of Riddick and Whited (2009); On the other hand, this sensitivity is positive when the company faces a negative cash flow [25] (Bao et al., 2012). In the next place, the companies are divided into two groups: companies with financial constraints and companies without financial constraints [26] according to the four index criteria [27] ww (Whitted and Wu, [28] 2006), dividend [29] (Bao et al., 2012), company size [30] (Arslan et al., [31] 2006; Azkan and Azkan [32], 2004) and score Adjusted total of companies (Bao et al., 2012) will be divided and we will conclude that the asymmetry of sensitivity of cash flows to cash holdings will remain continuously in both groups. Compared to the other group, companies with financial constraints are less prone to invest in new projects and unprofitable current plans; This is because external financing is a difficult thing for these companies (Erickson and Whited [33], 2000). All the obtained results will support our main hypotheses that companies in relation to their cash assets have different levels of response in the face of positive and negative cash flows. Therefore, the main purpose of our research is to investigate the relationship between the asymmetric sensitivity of cash flows and the holding of cash by companies with an emphasis on financial restrictions and external supervision. 1-3) Importance and necessity of research.

    Another mechanism of managers' decision-making in optimal use of suitable investment opportunities and achieving optimal performance of companies is the structure of cash assets of companies, which has been discussed and paid attention to in theoretical literature and in developed countries. Due to the high importance of the investment issue, due to the contracts of auction projects, the lack of publication of unpleasant news and agency costs, a company facing negative cash flows may not be able to immediately close all inappropriate projects. As a result, the negative sensitivity of cash flows to cash assets is true only for times when the company experiences positive cash flows. If a company faces a negative cash flow, according to our claim, the sensitivity of cash flows to the amount of liquidity will not necessarily be negative. The present study aims to look at the literature on the sensitivity of cash flows, to examine the asymmetric sensitivity of cash flows created in companies listed on the Tehran Stock Exchange, and to find out whether the asymmetric sensitivity of cash flows affects the structure and composition of companies' cash holdings, emphasizing financial restrictions and external supervision. Does it affect companies or not? According to the above-mentioned materials, the extraordinary importance of accumulated cash flows in connection with investment decisions can be a good motivation to conduct new research in this field.

    1-5) Research objectives

    The purpose of this research is to complete the gap in the field of thematic literature by investigating the answer to the question of what is the relationship between the asymmetric sensitivity of cash flows and holding cash of companies. Emphasizing the financial limitations of companies admitted to the Tehran Stock Exchange. The objectives of the research in two sections include practical objectives and practical objectives as follows.

    1-5-1) Scientific objectives:

    Many academic researches have been conducted both inside the country and abroad, in relation to cash flow and the impact of various factors on it, but despite this, most of these researches are focused on the impact of various factors and variables on policies and rules within the company, so far there has been no research. Regarding the investigation of the asymmetric sensitivity of cash flows and holding cash of companies with emphasis on financial limitations, it has not been done in Iran, so this research is completely new and with its innovative aspect, it seeks to improve the theoretical foundations and enrich the literature of the present subject. Keeping the cash of the companies with emphasis on the limits of the applied financial base for the capital market players, including potential and actual investors. will provide

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    Table of Contents

    Title                                                                                                                              Page

    Abstract.. 1

    Chapter One: General Research

    1-1) Introduction. 3

    1-2) statement of the problem. 3

    1-3) The importance and necessity of research. 5

    1-5) research objectives. 6

    1-5-1) scientific goals. 6

    1-5-2) practical goals. 6

    1-6) research hypotheses. 7

    1-7) variables and research model. 7

    1-7-1) research variables. 7

    1-7-1-1) dependent variable. 7

    1-7-1-2) independent variables. 7

    1-7-1-3) control variables. 7

    1-7-2) analytical model of research. 7

    1-8) research method. 8

    1-9) Methods and tools for collecting information. 8

    1-10) Information analysis method. 9

    1-11) research territory. 9

    1-11-1) Subject area. 9

    1-11-2) Time realm. 9

    1-11-3) spatial territory. 9

    1-12) Society and the statistical sample of the research. 10

    1-13) definitions of key words (operational definitions of words). 10

    1-14) research structure. 11

    1-14) chapter summary. 12

    Chapter Two: A review of research literature

    2-1) cash flows. 14

    2-1-1) The importance of cash flows. 14

    2-1-2) Accounting measurements through future cash flows. 14

    2-1-3) historical information (accrual items) and cash flows. 15

    2-1-4) The relationship between current and future cash flows and the investment level of companies. 16

    2-1-5) objectives of cash flows (liquidity management, ability to pay debts and financial flexibility) 16

    2-1-6) classification of current assets and cash flows. 17

    2-1-7) moving towards cash flows. 17

    2-1-8) current cash flows and expected cash flows of investors. 18

    2-1-9) cash flows and net profit. 19

    2-1-10) Types of cash flows. 20

    2-1-10-1) cash flow of equity. 20

    2-1-10-2) capital cash flow. 21

    2-1-10-3) Free cash flow. 21

    2-1-11) Difference between cash flows. 22

    2-1-12) The nature and concept of free cash flow. 23

    2-1-13) cash flow statement. 24

    2-1-13-1) History of cash statement. 25

    2-1-13-2) Classification of cash flows and how to present the cash flow statement according to the Iranian accounting standard 27

    2-1-13-3) The concept of cash flows resulting from operational activities. 28

    2-1-14) Providing information about cash flow and its forecast. 29

    2-1-15) operational cash flows and profit sharing policies. 30

    2-2) Factors affecting cash flow forecasting. 30

    2-2-1) Cash flow sensitivity of cash. 30

    2-2-2) Asymmetry in the sensitivity of cash flows caused by cash. 31

    2-2-3) financial limitations and sensitivity of cash flows. 32

    2-2-3-1) financial limitations and sensitivity of cash flows from investment. 32

    2-2-3-2) Financial limitations and sensitivity of cash flows caused by cash. 33

    2-3) Maintenance of cash and cash flows. 35

    2-3-1) The ratio of cash balances to company assets. 35

    2-3-2) Relationship between cash and profit. 36

    2-3-3) circulation of cash and profit as a means of forecasting. 37

    2-3-4) managing cash assets and converting them into cash flows. 37

    2-3-5) Motives for keeping cash. 38

    2-3-5-1) Trading motivation. 38

    2-3-5-2) Precautionary motive. 39

    2-3-5-3) Speculation motive. 40

    2-3-6) Relationship between accounting goals and cash flows. 40

    2-3-7) cash, cash flows and theoretical framework. 41

    2-3-8) circulation of cash and cash flows. 42

    2-3-9) reasons for keeping cash and theories related to the level of keeping cash and cash flows 45

    2-3-9-1) theory of information asymmetry. 45

    2-3-9-2) representation theory. 45

    2-3-9-3) balance theory. 46

    2-3-9-3-1) Determining factors of cash from the point of view of balance theory. 47

    2-3-9-3-1-1) Investment opportunities. 47

    2-3-9-3-1-2) Liquidity of current assets. 47

    2-3-9-3-1-3) financial leverage.47

    2-3-9-3-1-4) size. 48

    2-3-9-3-1-5) cash flow. 48

    2-3-9-3-1-6) Cash flow uncertainty. 48

    2-3-9-3-1-7) debt maturity. 48

    2-3-9-3-1-8) Payment of dividends. 49

    2-3-9-4) Theory of financing hierarchy. 49

    2-3-9-4-1) Determinants of cash from a hierarchical point of view. 50

    2-3-9-4-1-1) Investment opportunities. 50

    2-3-9-4-1-2) financial leverage. 50

    2-3-9-4-1-3) cash flow. 50

    2-3-9-4-1-4) size. 50

    2-3-9-5) theory of free cash flow. 51

    2-3-9-5-1) Cash flow determinants from the point of view of free cash flow theory. 52

    2-3-9-5-1-1) financial leverage. 52

    2-3-9-5-1-2) Investment opportunities. 52

    2-3-9-5-1-3) size. 52

    2-3-9-5-1-4) Banking relations. 53

    2-3-10) Short-term investments and the ability to convert into cash flows. 53

    2-3-11) Liquidity level and short-term investments that can be converted into cash. 54

    2-3-12) optimal and desirable level of cash. 54

    2-3-12-1) Bamol model. 54

    2-3-12-2) Miller-Orr model. 55

    2-3-12-3) Brunk model. 56

    2-3-12-4) New fund models. 56

    2-3-13) strategic goals of cash management. 57

    2-3-14) Advantages and disadvantages of keeping cash assets. 57

    2-4) Research background. 57

    2-4-1) Research conducted abroad. 58

    2-4-2) Research conducted inside the country. 62

    2-4-3) Summary of foreign and domestic research. 64

    Chapter Three: Research Implementation Method

    3-1) Introduction. 68

    3-2 (the statistical population of the research. 68

    3-3) Determining the size of the research sample. 68

    3-4) specific research objectives. 70

    3-4-1) The main goal. 71

    3-4-2) Sub-goals. 71

    3-5) research questions. 71

    3-6) research hypotheses. 71

    3-7) research method. 71

    3-7-1) Research method in terms of nature and content. 71

    3-7-2) research method in terms of goal. 72

    3-7-3) Research method. 72

    3-8) Method and tool of information collection. 72

    3-9) Definition of variables and how to calculate them. 72

    3-9-1) The ratio of changes in the level of cash holding of companies (). 73

    3-9-2) The rate of change in the sensitivity of cash flows (). 74

    3-9-3) The degree of asymmetry of cash flow sensitivity (). 74

    3-9-10) company size (). 78

    3-9-11) capital expenditure ratio (). 78

    3-9-12) Acquisition of shares (). 79

    3-9-13) ratio of net non-cash working capital (). 79

    3-9-14) ratio of short-term debts at the beginning of the period (). 80

    3-10) research models. 81

    3-11) internal and external validity of the research. 82

    3-12) The method of analyzing models and testing hypotheses. 82

    3-13) Panel data method. 83

    3-14) fixed effects method. 84

    3-15) Chow test or bounded F. 85

    3-16) Hausman test. 86

    3-18) Coefficients significance test. 87

    3-19) The test related to checking the normality of the distribution of variables. 87

    3-20) Tests related to the assumptions of the linear regression model. 88

    3-21) The assumption of normality of the residuals. 88

    3-22) Assuming the absence of collinearity between independent variables. 88

    3-23) The assumption of independence of the residuals. 89

    3-24) Assuming the absence of heterogeneity of variances among the residuals. 90

    3-25) Assuming the absence of model specification error and linearity of the model. 90

    Chapter Four: Data Analysis

    4-1) Introduction. 93

    4-2) Descriptive statistics of research variables. 93

    4-3) The test of normality of the distribution of the dependent variable of the research. 95

    4-4) Check the correlation between research variables. 98

    4-5) Checking the collinearity between research variables. 100

    4-6) The results of the research hypotheses test. 101

    4-6-1) The results of the first research hypothesis test. 101

    4-6-2) The results of the second research hypothesis test. 105

    4-7) Summary of the chapter. 108

    Chapter Five: Conclusion and Suggestions

    5-1) Introduction. 111

    5-2) Summary of the research. 111

    5-3) Hypothesis test results. 114

    5-3-1) Test results of the first research hypothesis. 114

    5-3-2) The results of the second research hypothesis test.

Studying the relationship between asymmetric cash flow sensitivity and cash retention in companies listed on the Tehran Stock Exchange with an emphasis on financial constraints.