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

How firms manage their cash flows: an examination of diversification’s effect 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. Review of Quantitative Finance and Accounting Springer Journals

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

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Springer US
Copyright © 2016 by Springer Science+Business Media New York
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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