Financial Accounting Knowledge

Current Issue

By Issue

By Author

By Subject

Author Index

Keyword Index

About Journal

Aims and Scope

Editorial Board

Publication Ethics

Indexing and Abstracting

Related Links

FAQ

Peer Review Process

Journal Metrics

News

Guide for Authors

Terms and Conditions

Forms

The Effect of Growth Opportunities, Financial Constraints, and Financial Distress on Cash Holding Adjustment’s Speed in Small and Medium Sized Companies

,

Document Type : Research Paper

Abstract

Purpose: Companies are looking for a targeted cash level so that they can maintain their financial flexibility. However, in some cases, companies may diverge from this level and return gradually to the optimal cash holdings level. The maintained cash and its targeted level may vary due to the adjustment costs, so the adjustments speed is affected by firm’s attributes. Accordingly, this study aims to investigate the effects of growth opportunities, financial constraints, and financial distress on the speed of adjustments in the cash holdings of listed small and medium sized companies (SMEs) on Tehran Stock Exchange.
Methods: For achieving this purpose, we selected 75 listed small and medium sized companies on Tehran Stock Exchange as a sample during 2012 to 2017, using multiple regression equations based on hybrid data.
Results:Results show that the holding cash adjustment speed of small and medium sized enterprises to reach the targeted level is affected by growth opportunities, financial constraints, and financial distress.
Conclusion: The findings show that small and medium-sized companies are rapidly adjusting their cash due to concerns about losing growth opportunities, as well as financial constraints and costs related to financial distress.
Contribution: These results could be beneficial for Iranian small and medium-sized companies with bank-based financing systems, or other small and medium-sized companies that have limited access to other financial resources. It can also improve managers' understanding of cash management and affect their responses to financial and economic shocks.

Keywords

References
 
1.Acharya, V. V., Almeida, H., & Campello, M. (2007). Is cash negative debt? A hedging perspective on corporate financial policies. Journal of Financial Intermediation, 16(4), 515-554.
2.Aghaei, M. A., Ahmadyan, V., & Jahaz-Atashi, A. (2014). Factors Affecting Capital Structure in Iranian Small and Medium Enterprises. The Financial Accounting and Auditing Researches, 6(22), 175-212 (In Persian).
3.Al.Najjar, B. (2015). The Effect of Governance Mechanisms on Small and Medium‐Sized Enterprise Cash Holdings: Evidence from the U nited K ingdom. Journal of Small Business Management, 53(2), 303-320.
4.Almeida, H., Campello, M., & Weisbach, M. S. (2004). The cash flow sensitivity of cash. The Journal of Finance, 59(4), 1777-1804.
5.Altman, E. I. (2000). Predicting financial distress of companies: revisiting the Z-score and ZETA models. Stern School of Business, New York University, 9-12.
6.Arslan, Ö., Florackis, C., & Ozkan, A. (2006). The role of cash holdings in reducing investment–cash flow sensitivity: Evidence from a financial crisis period in an emerging market. Emerging Markets Review, 7(4), 320-338.
7.Asadi, G. H., Baghdar, B. (2016). The effectiveness of the optimal level of cash displayed based on the value of listed companies in Tehran Stock Exchange. Journal of Audit Science, 15(61), 27-50 (In Persian).
8.Asquith, P., Gertner, R., & Scharfstein, D. (1994). Anatomy of financial distress: An examination of junk-bond issuers. The Quarterly Journal of Economics, 109(3), 625-658.
9.Autukaite, R., & Molay, E. (2011). Cash holdings, working capital and firm value: Evidence from France. Electronic copy available at: http://ssrn.com.
10.  Aybar-Arias, C., Casino-Martínez, A., & López-Gracia, J. (2012). On the adjustment speed of SMEs to their optimal capital structure. Small Business Economics, 39(4), 977–996.
11.  Azimi, M., Sabagh, M. (2014). The value Relevance of Cash Holding in the Companies Listed in Tehran Stock Exchange. Quarterly Financial Accounting Journal, 6(21), 129-152 (In Persian).
12.  Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do US firms hold so much more cash than they used to?. The journal of finance, 64(5), 1985-2021.
13.  Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2008). Financing patterns around the world: Are small firms different?. Journal of Financial Economics, 89(3), 467-487.
14.  Belghitar, Y., & Khan, J. (2013). Governance mechanisms, investment opportunity set and SMEs cash holdings. Small Business Economics, 40(1), 59-72. Berger, A. N., & Udell, G. F. (1998). The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle. Journal of banking & finance, 22(6-8), 613-673.
15.  Berger, A. N., & Udell, G. F. (2003). Small business and debt finance. In Handbook of entrepreneurship research (pp. 299-328). Springer, Boston, MA.
16.  Berger, A. N., Klapper, F., & Udell, G. F. (2001). The ability ofbanks to lend to informationally opaque small businesses.Journal of Banking & Finance, 25(12), 2127–2167.
17.  Bigelli, M., & Sánchez-Vidal, J. (2012). Cash holdings in private firms. Journal of Banking & Finance, 36(1), 26-35.
18.  Byoun, S. (2011). Financial flexibility and capital structure decision. Available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1108850.
19.  Campbell, J. Y., Hilscher, J., & Szilagyi, J. (2008). In search of distress risk. The Journal of Finance, 63(6), 2899-2939.
20.  Denis, D. J., & Sibilkov, V. (2010). Financial constraints, investment,and the value of cash holdings. Review of FinancialStudies, 23, 247–269.
21.  Dittmar, A., Mahrt-Smith, J., & Servaes, H. (2003). International corporate governance and corporate cash holdings. Journal of Financial and Quantitative analysis, 38(1), 111-133.
22.  Drobetz, W., & Grüninger, M. C. (2007). Corporate cash holdings: Evidence from Switzerland. Financial Markets and Portfolio Management, 21(3), 293-324.
23.  Fakhari, H., Asadzadeh, A. (2017). Studying the Effect of Corporate Governance on the Relationship among Leverage and Free Cash Flow and the Cash Holding Adjustments. Journal of Iranian Accounting Review, 4(16), 91-110 (In Persian).
24.  Faulkender, M. (2002). Cash holdings among small businesses.Working Paper, Washington University in St. Louis.
25.  Faulkender, M., & Wang, R. (2006). Corporate financial policy and the value of cash. The Journal of Finance, 61(4), 1957-1990.
26.  Fazzari, S. M., Hubbard, R. G., Petersen, B. C., Blinder, A. S., &Poterba, J. M. (1988). Financing constraints and corporateinvestment. Brookings Papers on Economic Activity, 1988,141–206.
27.  Ferreira, M. A., & Vilela, A. S. (2004). Why do firms hold cash? Evidence from EMU countries. European Financial Management, 10(2), 295-319.
28.  Foroghi, D., Farzadi, S. (2014). The effect of changes in cash flows on cash Holdings regarding Financing constraint facing the companies listed in Tehran Stock Exchange. Asset Management & Financing, 2(1), 21-36 (In Persian).
29.  Gao, H., Harford, J., & Li, K. (2013). Determinants of corporate cash policy: Insights from private firms. Journal of Financial Economics, 109(3), 623-639.
30.  Ghorbani, S., Adili, M. (2012). Firm Value, Cash Holdings and Information Asymmetry. Journal of Accounting Knowledge, 3(8), 131-149 (In Persian).
31.  Han, S., & Qiu, J. (2007). Corporate precautionary cash holdings. Journal of Corporate Finance, 13(1), 43-57.
32.  Hassas Yeganeh, Y., Jafari, A., & Rasaiean, A. (2011). Determinants of the level of cash holdings in Tehran stock exchange. Quarterly Financial Accounting Journal, 3(9), 39-66 (In Persian).
33.  Hovakimian, G., & Titman, S. (2006). Corporate investment with financial constraints: sensitivity of investment to funds from voluntary asset sales. Journal of Money, Credit & Banking, 38(2), 357–374.
34.  Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323-329.
35.  Kanani-Amiri, M. (2008). Financial Constraints and Stock Return in Capital Market. Biannual Peer Review Journal of Business Strategies, 5(26), 17-30 (In Persian).
36.  Kim, C. S., Mauer, D. C., & Sherman, A. E. (1998). The determinants of corporate liquidity: Theory and evidence. Journal of financial and quantitative analysis, 33(3), 335-359.
37.  Kim, Jiyoung, Kim, Hyunjoon And Woods, David (2011), “Determinants Of CorporateCash-Holding Levels”, An Empirical Examination Of The Restaurant Industry”,International Journal Of Hospitality Management 30(3), 568–574.
38.  Lockhart, G. B. (2014). Credit lines and leverage adjustments. Journal of Corporate Finance, 25, 274-288.
39.  López-Gutiérrez, C., Sanfilippo-Azofra, S., & Torre-Olmo, B. (2015). Investment decisions of companies in financial distress. BRQ Business Research Quarterly, 18(3), 174-187.
40.  Martínez-Sola, C., García-Teruel, P. J., & Martínez-Solano, P. (2018). Cash holdings in SMEs: speed of adjustment, growth and financing. Small Business Economics, 1-20.
41.  Matoufi, A., Golchoubi, M. (2018). The Effect of Family Ownership on Speed of Adjustment of Cash Holding: Evidence from Tehran Stock Exchange. Financial Accounting Researches, 9(4), 61-82 (In Persian).
42.  Mohajer, A., Chaharmahali, A. (2019). Investigating the relationship between economic value added and cash holdings of listed companies in Tehran Securities Exchange. Journal Management System, 8(30), 72-59 (In Persian).
43.  Myers, S. C. (1984). The capital structure puzzle. The journal of finance, 39(3), 574-592.
44.  Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187-221.
45.  Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of financial economics, 52(1), 3-46.
46.  Ozkan, A., & Ozkan, N. (2004). Corporate cash holdings: An empirical investigation of UK companies. Journal of Banking & Finance, 28(9), 2103-2134.
47.  Ramooz, N., Mahmoudi, M. (2017). The Prediction of the Risk of Financial Bankruptcy Using Hybrid Model in Tehran Stock Exchange. Journal of Financial Management Strategy, 5(1), 51-75.
48.  Sarlak, N., Faraji, O., Ezadpour, M., & Joudaki Chegeni, Z. (2018). CEO Over-confidence and Corporate Cash Holdings: Emphasizing the Moderating Role of Audit Quality. Accounting and Auditing Review, 25(2), 199-214 (In Persian).
49.  Steijvers, T., & Niskanen, M. (2013). The determinants of cash holdings in private family firms. Accounting & Finance, 53(2), 537-560.
50.  Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American economic review, 71(3), 393-410.
51.  Tavakolnya, E., Tirgari, M. (2015). Financial Leverage, Cash Holdings and Firm Value in the Companies Listed in Tehran Stock Exchange: Investigating Non-linear and Hierarchical Relationships. Management Accounting, 7(3), 35-51 (In Persian).
52.  Vermoesen, V., Deloof, M., & Laveren, E. (2013). Long-term debt maturity and financing constraints of SMEs during the global financial crisis. Small Business Economics, 41(2), 433-448.
 
Financial Accounting Knowledge
Volume 6, Issue 4 - Serial Number 23
February 2020
Pages 99-131
Files
Share
How to cite
Statistics