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The purpose of this paper is to examine how pre-IPO cash flow and earnings volatility influence both post-IPO pricing and valuation. This paper provides an empirical extension of Pástor and Veronesi’s (2003, 2005) argument that uncertainty surrounding a private firm’s expected profitability can impact how the firm is valued in the IPO aftermarket.

This paper includes a sample of 695 IPOs between 1996 and 2011. Pre-IPO financial statement data are hand collected from the EDGAR database. Pre-IPO cash flow and earnings volatility is computed using the standard deviation of the firm’s three years of cash flows and earnings prior to the IPO. Tobin’s Q serves as a measure of post-IPO firm valuation. This paper includes two subsamples to account for the “hot” IPO market of the late 1990s.

Firms with higher pre-IPO cash flow volatility are associated with higher post-IPO aftermarket valuations. This result holds for both the “hot” IPO and the later sub-sample. Pre-IPO earnings volatility does not influence aftermarket valuations, suggesting that only the uncertainty surrounding cash flows serves as a salient measure to IPO investors. Finally, IPO underpricing is associated with pre-IPO cash flow volatility, suggesting another channel in which IPO pricing is influenced.

The hand collection for this paper is laborious and is limited to yearly cash flow and earnings numbers. The paper documents that quarterly and yearly cash flow and earnings volatility measures are highly correlated for the select stocks that allow for such testing. Further, a broader sample that accounts for more international IPO issues might corroborate the findings in this paper.

This study shows that investors both initially price and value IPO firms base on their pre-IPO cash flow volatility.

This is the first paper to examine the direct link between pre-IPO cash flow and earnings volatility on IPO aftermarket valuation and IPO pricing.

The purpose of this paper is to test whether investors take flight to safety when sentiment is low. In other words, do safe firms perform better than risky firms following periods of low sentiment.

Using cash flow volatility and the percent of bullish investors as proxies for risk and investor sentiment the paper tests the relationship between sentiment and returns conditional on risk this performance. Second, a cross-sectional analysis is conducted based on individual firm characteristics and sentiment to explain annual returns.

The paper finds that there is a negative relationship between investor sentiment and the return of risky companies, which is contrary to prior studies. All told, risky companies perform worse following periods of high investor sentiment.

This paper presents evidence contrary to extant literature and that there is no concerted flight to safety. Investor sentiment has little influence on safe stocks.

The purpose of this paper is to identify the relation between cash flow volatility and trade credit offered by firms in developing Asian economies.

The study conducts country fixed effect regressions testing the relationship between cash flow volatility and firm investment in trade credit. The relationship is then examined with all firms separated into two groups based on firm size, and then again comparing the relation before and after the 2008 finasncial crisis.

Higher levels of cash flow volatility are negatively related to the amount of trade credit offered. The negative relationship with cash flow volatility is greater amongst smaller firms that may have less access to external sources of capital. Additionally, the negative relationship is greater following the 2008 financial crisis.

Trade credit plays an important role in the business process, particularly in developing economies. However, these firms may not be able to maintain their investment in trade credit when experiencing greater levels of cash flow volatility. These results are especially pronounced after the 2008 financial crisis and for small firms.

This study identifies an important connection between cash flow volatility and firm investment in trade credit among firms in developing Asian economies.

I analyze cash flow and transparency characteristics of listed infrastructure investment companies and funds and compare this unique infrastructure sample with a non-infrastructure reference group. I confirm the common hypothesis that infrastructure investments provide more stable cash flows than non-infrastructure investments. However, I do not find that investors positively value this cash flow stability. Instead, more volatile cash flows are valued with a premium. On the other hand, earnings management is valued with a discount. Together with a punishment for complex financial and governance structures this indicates a punishment for a lack of transparency by investors. My chapter also offers evidence that infrastructure investments in general are valued with a positive “infrastructure premium” that is not driven by more stable cash flows. I find additional evidence that sector specifics and regulatory risk play a significant role for the valuation of infrastructure investment companies and funds.

We identify a novel concept of discretionary idiosyncratic volatility proxied by the idiosyncratic volatility component not related to the non-systematic industry volatility as a source of agency problems that have implications for firms’ cash holdings and their investment decisions. We find that firms with low discretionary idiosyncratic volatility, which likely captures discretionary effort and risk-taking by managers, have smaller cash reserves. Moreover, while high discretionary idiosyncratic volatility firms spend cash internally (internal capital building), low discretionary idiosyncratic volatility firms use it for external acquisitions, consistent with the “quiet life” hypothesis. Our findings thus indicate a need for reinforcement of existing regulations and corporate laws to control for agency costs, which could in turn reduce firm risk and the probability of financial meltdown at the aggregate level.

The purpose of this paper is to identify three factors leading to the observed decline in trade credit offered from publicly traded firms.

The study conducts firm fixed effect regressions testing the relationship between cash flow volatility and firm investment in trade credit. The relationship is further examined with all firms separated into two groups, based on SIC codes, designating if they are in industries that traditionally offer higher amounts of trade credit.

The proportion of US firms that has traditionally extended the most trade credit has been decreasing over time, contributing to part of the decline in trade credit offered. Increases in cash flow volatility have also contributed to decreasing investment in trade credit. The negative relationship with cash flow volatility is greatest amongst firms that traditionally place the highest value on trade credit. Firms with access to credit, proxied by investment grade debt ratings, do not experience the same decline in trade credit offered.

Firms that value the ability to extend trade credit may maintain their level of investment in trade credit, even with increased risk of cash flow volatility, by maintaining a comparative advantage in access to credit.

This study extends prior findings by providing three previously unexplored explanations for the decline in offered trade credit seen in the USA. The changing make-up of publicly traded firms, a market-wide increase in cash flow volatility, and access to credit all play an important role in observed declines of trade credit investment.

The purpose of this paper is to investigate the influence of cash flow volatility on firm’s leverage levels. It also analyzes how cash flow volatility influences the debt maturity structure for the Chinese listed firms.

The authors construct the measure for cash flow variability as five-year rolling standard deviation of the cash flow from operations. The authors use generalized linear model approach to determine the effect of volatility on leverage. In addition, the authors design a categorical debt maturity variable and assign categories depending upon firm’s usage of debt at various maturity levels. The authors apply Ordered Probit regression to analyze how volatility affects firm’s debt maturity structure. The authors lag volatility and other independent variables in the estimation models so as to eliminate any possible endogeneity problems. Finally, the authors execute various techniques for verifying the robustness of the main findings.

The authors provide evidence that higher volatility of cash flows results in lower leverage levels, while the sub-sampling analysis reveals that there is no such inverse association in the case of Chinese state-owned enterprises. The authors also provide novel findings that irrespective of the ownership structure, firms facing high volatility choose debt of relatively shorter maturities and vice versa. Overall, a rise of one standard deviation in volatility causes 8.89 percent reduction in long-term market leverage ratio and 26.62 percent reduction in the likelihood of issuing debentures or long-term notes.

This study advocates that cash flow volatility is an essential factor for determining both the debt levels and firm’s term-to-maturity structure. The findings of this study can be helpful for the financial managers in maintaining optimal leverage and debt maturity structure, for lenders in reducing their risk of non-performing loans and for investors in their decision-making process.

Existing empirical literature regarding the influence of variability of cash flows on leverage and debt maturity structure is inconclusive. Moreover, prior research studies mainly focus only on the developed countries. No previous comprehensive study exists so far for Chinese firms in this regard. This paper endeavors to fulfill this research gap by furnishing novel findings in the context of atypical and distinctive institutional setup of Chinese firms.

The purpose of this paper is to investigate the impact of market-level uncertainty on dividend and repurchase decisions.

Using a large data set over a nearly 50-year period, the author examines the choice to pay dividends and repurchase shares using logit and multinomial logit regressions.

Market-level uncertainty (measured by a GARCH estimate of volatility, as well as the Chicago Board Options Exchange Volatility Index) is shown to have a statistically significant impact on firms’ payout policy decisions. This impact is different for dividends and repurchases as well as for firms with differing levels of cash flows. As market uncertainty increases, firms with low cash flow levels tighten dividend policy to conserve cash while firms with high cash flow levels become opportunistic through the use of share repurchases.

The findings allow investors to better understand the connection between shifts in market-level uncertainty and corporate payout policy, specifically through the differing use of dividends and repurchases.

While prior literature on payout policy has focused on firm-level determinants, this study demonstrates that market-level uncertainty impacts firms’ payout policy decisions uniquely. Furthermore, this is, to the author’s knowledge, the first study to differentiate by relative cash flow level, demonstrating that not all cash flow levels react in the same manner.

The purpose of this paper is to investigate the association between unemployment insurance (UI) benefits and firms’ future performance as well as the association between UI benefits and volatility of firms’ future performance.

Quantitative analyses are used to perform empirical testing, and the variables in this study have been selected from previous literature. Empirical data consists of UI benefits data published from 2003 to 2012 on the US Department of Labor website, accounting data from Compustat, and stock return data from CRSP.

Unemployment benefits are positively associated with firms’ future earnings and cash flows. Also, unemployment benefits are negatively associated with volatility of firms’ future earnings and cash flows. Finally, the positive association between unemployment benefits and firms’ future performance is more pronounced for firms with larger changes in labor force, and the negative association between unemployment benefits and volatility of firms’ future performance is more pronounced for firms with higher labor force volatility and capital structure volatility.

To the extent that other correlated omitted variables exist, the readers are asked to interpret the findings in this paper with caution.

This study contributes to prior literature on labor economics, finance, and accounting. The findings may be of interest to academic researchers and policy makers.

The purpose of this paper is to investigate IPO performance. At announcement, the impact of purchases by informed traders on stock returns and uninformed traders on volatility were assessed. In the post-IPO period, returns were expected to be driven by firms with high returns on equity and the implementation of growth strategies. Return on equity was evaluated further in terms of whether it had a direct effect or was instrumented by volatility, cash flow, profit margin or revenue growth.

All IPOs announced in 2009-2014 were used. Measures were created to demarcate growth firms from risk-averse firms and firms with highly volatile cash flows from their counterparts with cash flows of lesser volatility. Event studies were used to measure abnormal return and abnormal volume, while multiple regressions tested the influence of predictors on abnormal returns, volatility and holding period return. Instruments of return on equity were also assessed.

The offer volume of informed traders significantly explained announcement-day returns, while the offer volume of uninformed traders explained the increase in volatility of IPO stock. The ability to capitalize on growth opportunities and increase shareholder wealth through higher return on equity significantly predicted holding period returns. Return on equity, was explained by volatility, cash flow to assets and profit margin.

The data are highly current with 2014 IPOs being used. The paper clearly distinguishes between fleeting announcement-day returns driven by informed traders and long-term holding period returns in a departure from the prevailing practice of measuring long-term post-IPO performance with abnormal returns. Finally, the paper creates subjective measures of volatility and growth strategies.