Financial Crisis and Corporate Cash Holdings: Evidence from East Asian Firms
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1 Financial Crisis and Corporate Cash Holdings: Evidence from East Asian Firms Discussant I-Ju Chen, Yuan Ze University, Taiwan The NTU International Conference on Finance, 2010
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Financial Crisis and Corporate Cash Holdings: Evidence from East Asian Firms. Discussant I-Ju Chen, Yuan Ze University, Taiwan The NTU International Conference on Finance, 2010. Objectives. Examine the long-term impact of Asian financial crisis on firms’ cash holding policies. 2. - PowerPoint PPT Presentation
Transcript of Financial Crisis and Corporate Cash Holdings: Evidence from East Asian Firms
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Financial Crisis and Corporate Cash Holdings: Evidence from East Asian Firms
DiscussantI-Ju Chen,
Yuan Ze University, Taiwan
The NTU International Conference on Finance, 2010
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Objectives
Examine the long-term impact of Asian financial crisis on firms’ cash holding policies.
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Theories about firm’s holding excess cash
Transactional cost motivePrecautionary motiveAgency motive
The authors specifically investigate the time-series cash holding pattern from precautionary motive perspective.
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Findings A structural change in the time-series of the firms’ cash
holdings (CH). after the financial crisis, the mean ratio increases to
16% in 2006. Conservative investment policy
Capital expenditure decrease as well as M&A activities
The changes in firm characteristics can not explain the increase of firms’ cash holdings
Overall findings: partially consistent with precautionary motive
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General Comments
Well written and affluent paperTry to complement Bates, Kahle, and
Stulz’s (2009, JF) findings: how cash policy change in time-series pattern changes in risk, net working capital, R&D
investment exogenous shock
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Specific Comments - Hypotheses Development
Precautionary motive holding cash to hedge for future cash shortfalls firms tend to have large cash holdings when they
have higher cost of external finance Implication for firms’ experiencing exogenous shocks:
Managers are more sensitive to risk Firms who are more difficult to raise fund will hold more cash
Ex: financial constrained, small, non-dividend pay, or high-leveraged firms
More conservative and hold more cash => Firms change their demand fu. for cash
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Specific Comments- Hypotheses Development
Transaction cost motive Cash payment is cheaper than converting
non-cash asset Large firms hold less cash Implication for firms’ experiencing exogenous
shocks? Is it possible that firms become more difficult to
convert their investment or noncash asset, so holding more cash for transactional needs?
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Specific Comments - Hypotheses Development
Agency motiveHolding excess cash for managerial self interests Data limitation => authors do not test if cash holding
policy affected by agency concern after the crisis Implication for firms’ experiencing exogenous
shocks? Is it possible that firms with worse agency problem hold
more cash? (Dittmar, Marht-Smith, and Servaes, 2003; Harford, Mansi, Maxwell, 2006)
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Specific Comments - Hypotheses Development
More specific discussions about the relation between the CH and exogenous shocks under each perspective. unclear prediction about how transaction cost
motive to the change in cash holdings unclear explanation about how agency
concern will affect the cash holdings of the firms
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Specific Comments Empirical Findings
Table 2: leverage and equity issuance
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Specific Comments Empirical Findings
Is it possible that firms become more difficult to get external funds either from debt or equity issuance, so holding more cash either for precautionary or transactional needs?
Or, is it possible that the increase in the cash ratio may be the by-product for less liquidity of financial market so firms increase cash holding to offset high transaction costs of their non-cash investment? Increase in CH may due to TC or PC motives of firms.Further test about how transaction cost motive affects cash
holdings is helpful to differentiate the effect for changes of CH policy.
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Specific Comments Empirical Findings
Table 3
A significant relation between cash and investment may imply fewer source of funds available after the crisis. However, how can we differentiate its causes?
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Specific Comments
Methodology why not test the transaction cost motive for
cash holding? why not control for agency issue in the
regression models such as table 3 or table 8?It is not clear how exogenous shock affect the
transactional motive of cash holdings?We also unclear how agency concern affect cash
holdings?
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Specific Comments
Methodology Given that A, B, C may influence Q, it might
prelimanary to conclude that change of Q is caused by B without controlling the potential effect of A and C.
B
C
Q
A
△Q B+
C
+
+
+
A?
?
