ساختار شرکت و پول نقد نزد شرکت
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|14586||2011||15 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Corporate Finance, Volume 17, Issue 3, June 2011, Pages 759–773
We analyze whether the organizational structure of firms (i.e., whether a firm is diversified or focused) affects their cash holdings. Using Compustat firm level and segment-level data, we find that diversified firms hold significantly less cash than their focused counterparts. Our results are robust to industry adjustments at the segment level and to different factors previously found to be important determinants of cash holdings. Using time-series, cross-sectional, and additional robustness tests we are able to attribute the lower cash holdings among diversified firms to complementary growth opportunities across the different segments of these firms and the availability of active internal capital markets. We find that the other theories that rely on the potentially effective use of asset sales of non-core segments of diversified firms to generate cash, and the increased agency/influence costs in diversified firms do not offer an economically significant explanation for the lower cash holdings among diversified firms.
Cash holding, an important asset on firms' balance sheets, receives much attention from companies, investors, and analysts. Cash becomes especially important in recessions. The credit crunch that started in late 2007 has had a massive and sustained impact on the way many companies operate throughout the world. Companies with sufficient cash on hand may escape the need to tap into the increasingly costly and restrictive credit markets. Determinants of cash holdings have long been debated in the finance literature. Potential explanations range from the tradeoff between the marginal costs and benefits of holding cash to corporate governance.1 Our paper examines a previously ignored but important relationship between firm structure and cash holdings. We show that diversified firms hold significantly less cash than focused firms. The lower level of cash holdings among diversified firms can be attributed to their access to internal capital markets, greater potential for asset sales, and higher agency costs in diversified firms. The investment opportunities of individual segments of diversified firms may be imperfectly correlated, which suggests a possible role for internal capital market in these firms (Lamont, 1997, Shin and Stulz, 1998 and Khanna and Tice, 2001). If firms hold cash for potential growth opportunities as in Opler et al. (1999) and to react to the underinvestment problem arising from financing related predation risk in imperfect product markets as in Haushalter et al. (2007), the imperfect correlation mentioned above implies that diversified firms would need less cash on hand to meet their investment demands at any one point in time. Also, the availability of cash flow from one segment as potential capital for another segment reduces diversified firms' need for external capital and further reduces their benefits of holding cash. In addition, diversified firms are more likely to be able to raise funds by selling their assets than focused firms. Shleifer and Vishny (1992) describe asset sales as a source of financing. A firm with assets that can be cheaply converted into cash can raise funds at a low cost by selling these assets. Therefore, given the size and breadth of assets owned, diversified firms are more likely to raise funds by selling substantial assets, especially the non-core segments, than single-segment firms, which in turn reduces the need for cash holdings. Consequently, firms with more than one segment should have lower levels of cash holdings relative to focused firms. Lastly, diversified firms may face more severe agency problems that arise from segment-managers' intent to compete for firm-wide resources (Rajan et al., 2000). Segments with more influence in the firm will receive more resources, which could lead to over-investment and other dead-weight costs (Milgrom and Roberts, 1990 and Bagwell and Zechner, 1993). Therefore, the marginal costs of holding cash and liquid assets, which generate these agency costs, are higher for diversified firms than for focused firms.2 As a result, we would again expect diversified firms to hold less cash than focused firms in order to mitigate these agency costs. Using Compustat data for U.S firms in the1988 to 2006 period, this paper finds that diversified firms hold significantly less cash than focused firms. This difference in cash holdings remains significant even after controlling for industry at the segment level, and other important determinants of cash holdings found in the literature. In addition, our paper shows that the presence of growth opportunities that are imperfectly correlated across segments in the firm, the increased potential for asset sales (of non-core assets), and the higher agency costs among diversified firms are all statistically significantly related to their lower cash holdings. However, we also find that with additional robustness tests, the imperfect correlations in growth across segments and the cross-segment financing possibilities arising from internal capital markets emerge as the most consistent and economically significant explanations for the lower cash holdings among diversified firms. Our paper contributes to the cash holdings and the firm structure literatures in different and significant ways. Opler et al. (1999) provide a fundamental framework to study determinants of cash holdings and find several influential factors that determine cash holdings, including corporate growth prospects, short-term working capital, leverage, industry volatility, and firm size. Subsequent literature highlights the costs and benefits of cash holdings related to corporate governance (e.g., Dittmar et al., 2003, Pinkowitz et al., 2006, Kalcheva and Lins, 2007 and Harford et al., 2008 among others), the predation risk in imperfect product markets (Haushalter et al., 2007), financial constraints (Denis and Sibilkov, 2010), and the financing of corporate investments (e.g., Almeida et al., 2004). Dittmar et al. (2003) find that firms in countries with poor protection of shareholder rights hold twice as much cash as firms in countries with good protection of shareholder rights. They argue that the evidence is consistent with the view that investors in countries with poor shareholder protection are unable to force managers to pay out the excess cash. In a related vein, Dittmar and Mahrt-Smith (2007) show that the value of cash is also much lower in poorly governed firms. They show that in poorly governed firms, cash is dissipated in ways that significantly reduce future operating performance. Similarly, Harford et al. (2008) find that in firms with high anti-takeover provisions (i.e., firms with poor shareholder rights), cash is dissipated through value-destroying acquisitions. Consistent with this evidence, Kalcheva and Lins (2007) find that when external country-level governance is weak, although there is no general discount in value of high cash balance firms, there is a valuation discount to high cash balance firms where the managers are also expected to be entrenched.3 Our first significant contribution is that we examine the importance of several, previously ignored, non-governance related factors in explaining corporate cash holdings. We focus on organizational structure of firms by taking into account the cross-segment correlations in investment opportunities, and agency and asset structure aspects that are unique to diversified firms. We find clear evidence that firm structure influences cash management strategy and a diversified firm structure lowers the optimal level of cash holdings. As Harford et al. (2008) argue, unlike in international data, where there is substantial variation in the protection of shareholder rights across countries, in the U.S., governance is fairly uniform. This lack of significant variation in governance regimes, especially between focused and diversified firms, provides us with an opportunity to isolate the relative importance of non-governance factors in determining cash holdings. Second, this paper also contributes to the existing literature on firm structure—diversified versus focused firms, in two distinct ways. First, our paper complements the work in Harford et al., 2003, Haushalter et al., 2007, Acharya et al., 2007 and Denis and Sibilkov, 2010 all of whom either directly or indirectly argue that cash acts as a hedge for firms against financing and predation risk, especially in downturns. We show that in this regard, a diversified firm structure in itself may be a natural hedge and may act as a substitute for cash holding. In addition, prior papers, including Berger and Ofek, 1995, Lamont, 1997, Shin and Stulz, 1998 and Khanna and Tice, 2001, study the effectiveness of internal capital markets within diversified firms. We extend previous work on the efficient allocation of firm resources from internal capital markets to include cash holdings. Our finding that firms with higher influence costs have less cash holdings indicates that conglomerates respond to the higher agency costs by reducing their cash holdings. Third, this paper develops a methodology similar to that used in Berger and Ofek (1995) to control for the industry effects on cash holdings, while previous literature uses industry dummy variables to control for the industry effects. More specifically, we use the median cash holdings in the industry of each division to calculate imputed cash holdings and then use adjusted cash holdings to measure the difference between diversified firms and focused firms. The measurement improvement is non-trivial because diversified firms by definition operate in more than one industry, and so the (primary) industry dummy variable cannot fully capture the industry effects and thereby leads to noisy estimates. By developing this methodology, we have a much improved proxy for industry effects. The rest of this paper is organized as follows. Section 2 formally discusses the theoretical framework used in this paper. This is followed by a description of the data and empirical methodology in Section 3. Section 4 presents empirical analyses of the effects of firms' structure on their cash holdings. Section 5 reports results from various robustness checks, including different regression specifications and with alternate variables and proxies. Section 6 concludes.
نتیجه گیری انگلیسی
This paper analyzes the effect of firms' organizational structure (i.e., whether a firm is diversified or focused) on their cash holdings. Focusing on organizational structure allows us to explore non-governance related cash determinants, which complements the recent spate of research on the impact of governance mechanisms on cash holdings. There are several reasons why firm structure could affect cash holdings. We examine three hypotheses, the complementary growth, asset sales, and influence cost hypotheses. First, in diversified firms, since the time-series of investment opportunities for different segments may not be perfectly correlated, the total cash need for a diversified firm may be less volatile over time. If firms hold cash for potential growth needs, diversified firms would need less to meet the investment need at any one point in time. Additionally, if there is an active internal capital market within diversified firms, the cash flow of one segment is available as capital for another segment. This reduces the need for external capital thereby reducing a benefit of holding cash. Second, diversified firms are more likely than single-segment firms to be able to raise funds by selling substantial assets, especially assets of non-core segments. This reduces the benefits of cash holdings. Hence, firms with more than one segment should have lower levels of cash holdings. Finally, agency problems, especially influence costs that arise from segment-managers' value-dissipating competition for firm-wide resources, are more severe among diversified firms than single-segment firms. Thus the marginal cost of holding cash and liquid assets, which exacerbate the agency costs, are higher for diversified firms than for focused firms. Hence, we would expect diversified firms to hold less cash. All three hypotheses predict that diversified firms will have less cash holdings than their stand-alone counterparts. Using Compustat firm level and segment-level data in the 1988–2006 period, we find that diversified firms hold significantly less cash than their focused counterparts. Our results are robust to industry adjustments at the segment level and to different factors previously found to be important determinants of cash holdings. Using time-series, cross-sectional, and additional robustness tests we are able to attribute the lower cash holdings among diversified firms to complementary growth opportunities across the different segments of these firms and the availability of internal capital markets. We find that the other theories that rely on the potentially effective use of asset sales to generate cash, and the increased agency costs in diversified firms are not always statistically significant in robustness tests, and nor are the results economically significant in explaining the lower cash holdings among diversified firms.