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

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Nguyen, Thang and Cai, Charlie X. and McColgan, Patrick (2017) How firms manage their cash flows : an examination of diversification's effect. Review of Quantitative Finance and Accounting, 48. 701–724. ISSN 0924-865X (https://doi.org/10.1007/s11156-016-0565-1)

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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.

ORCID iDs

Nguyen, Thang, Cai, Charlie X. and McColgan, Patrick ORCID logoORCID: https://orcid.org/0000-0002-7980-6175;
  • Item type:Article
    ID code:55218
    Dates:
    Date
    Event
    1 April 2017
    Published
    25 March 2016
    Published Online
    1 December 2015
    Accepted
    Notes:This is a post-peer-review, pre-copyedit version of an article published in Rev Quant Finan Acc. The final version is available online at: https://doi.org/10.1007/s11156-016-0565-1
    Subjects:Social Sciences > Finance
    Social Sciences > Commerce > Accounting
    Department:Strathclyde Business School > Accounting and Finance
    Depositing user: Pure Administrator
    Date deposited:05 Jan 2016 14:04
    Last modified:14 Dec 2024 01:18
    URI:https://strathprints.strath.ac.uk/id/eprint/55218
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