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This study aims to investigate the influence of macro-financial conditions on firm-level capital allocation as a micro-transmission mechanism of monetary policy in Vietnam.

The authors employ a dynamic model of investment based on the Euler equation approach that allows for financial frictions. The financial conditions are proxied by a composite index of the current states of financial variables, including interest rates, exchange rates, stock prices, and credit demand – which captures short-term shocks in monetary transmission channels. Corporate financing constraints, as a reflection of financial frictions, are measured by the sensitivity of investment to internal funds, which are extensively examined in terms of both negative and positive cash flows.

In the presence of a non-monotonic (or U-shaped) investment–cash flow relation, the empirical evidence from Vietnamese listed firms indicates that financial conditions affect investment behavior for only firms with negative cash flows, in the sense that better financial conditions alleviate the level of “negative” financing constraints (i.e. the sensitivity of investment to negative cash flow). This effect is greater for larger firms and more likely pronounced for firms without state ownership.

This study contributes to the literature on corporate financing constraints in a manner of considering the macroeconomic dimension, specifically exploring the asymmetric impacts of financial conditions on the investment sensitivity to cash flow.

The purpose of this paper is to investigate the effect of family ownership on investment-cash flow sensitivity and on firm performance.

The author uses panel data to examine the relationship between investment and cash flow and between family ownership and the firm performance of Thai listed firms from 2001 to 2008. To account for the endogeneity of the lagged dependent variable, the investment equation is estimated by the generalized method of moments, following Arellano and Bond (1991).

The presence of family owners reduces the sensitivity of investment and cash flow. At low and high levels of family ownership, an increase in family shareholding leads to lower investment-cash flow sensitivity. In contrast, firms with medium family ownership levels have higher investment-cash flow sensitivity. Only at high levels of family ownership is firm performance positively related to family shareholding.

The ownership levels of family shareholders affect the investment-cash flow sensitivity in an S-shaped relation, supporting the interest alignment and entrenchment effects. When family shareholders have high ownership incentives, their interest alignment reduces the agency costs of free cash flow problems and leads to higher firm performance.

Using a sample of US firms more likely to be affected by agency problems, the purpose of this paper is to investigate the relationship between corporate value and financial policies and to study whether credit market freedom (CMF) affects this relationship.

The authors identify a sub-sample of non-financial US firms potentially affected by agency problems using a joint criterion of over-investment and high cash-holdings. A generalized method of moment econometric framework is then used to estimate the impact of cash-holdings and leverage policies on firm value for this sub-sample. This exercise is also performed by taking into account the level of CMF of the state where the firm operates.

The results show that the relationship between cash-holdings – or leverage – and firm value is “U-shaped.” In addition, when the authors focus on the role played by the level of CMF, the authors find a number of interesting facts: CMF facilitates the firms’ access to external finance, thereby relaxing the need of internal funds for investing; the relationship between cash-holdings and firm value is “U-shaped” only in states enjoying high levels of CMF; the probability of observing firms more likely to be affected by agency problems is higher in states with high levels of CMF.

The empirical findings provide important insights to policymakers, shareholders and practitioners. To policymakers, the results suggest that providing institutional environments with greater CMF can enhance the firm access to external finance, the level of corporate investment and the economic growth. To shareholders, the findings highlight that the conflicts of interest between managers and shareholders may be more severe in states with higher CMF; therefore, adequate financing policies and corporate governance mechanisms must be used to mitigate these conflicts and maximize the firm value. Finally, to practitioners, the evidence suggests that, in valuing a firm, they must take into consideration whether the economic environment provides managers with more freedom to stockpile cash and invest sub-optimally.

The paper contributes to the corporate finance and governance literature in two respects. First, it provides new evidence on the shape of the relationship between cash holdings and firm value for firms affected by empire-building managers. Second, at the best of the knowledge, it is the first corporate finance study, which analyzes the role played by the CMF at the state level on the capital structure and the level of investment of the firms.

This paper aims to investigate the possible non-linear effect of net working capital (NWC) level on profitability for Middle East and North Africa (MENA) region listed companies. Furthermore, the study tests the possible interactive effect of cash levels on the relationship between NWC and profitability.

NWC level is the independent variable and profitability is the dependent variable using two proxies, return on assets (ROA) and returns on equity (ROE). Control variables are size, leverage, gross domestic product growth and sales revenue growth. The generalized method of moments was used to analyze the data of 134 consumer-goods listed firms in 12 MENA countries for the period 2013–2019.

The results demonstrate that NWC levels had a non-linear effect on profitability using ROA as a profitability proxy while results were insignificant using ROE as a profitability proxy. Furthermore, results show the absence of interactive effects between NWC, cash levels and both profitability proxies.

The study fills a gap in the working capital management (WCM) literature by providing new evidence on WCM’s non-linear effect of corporate performance in the MENA region emerging markets using the consumer-goods industry sample. The study contributes to the financial managers’ working capital optimization efforts in the MENA region by providing evidence on the usefulness of WC optimization efforts in the region from a financial performance point of view. According to the researchers’ knowledge, a few studies attempted to investigate this non-linear relationship for neither MENA region countries nor the consumer-goods industry.

The paper examines the differential effect of liquidity constraints on corporate growth using unbalanced panel data for 457 Pakistani firms over the period 2010–2017.

The study uses the probability of a financial unconstrained index constructed by estimating the endogenous regression model. This approach provides a time-varying measure of financial position for all firm-year observations and takes into account the different degrees of liquidity constraints that a company faces in attaining funds from external markets. It is derived from a multivariate selection equation that simultaneously accounts for all-important features of the underlying company identified in the literature. The cash flow variable has then interacted with various groups of dummy variables for financial constraint, which allows the coefficient of cash flow to vary across firm-year observations in the different liquidity constraint categories. The two-step system-GMM estimator is applied to estimate the main empirical model.

The results of the study provide evidence of the heterogeneity in firms' growth sensitivity to internal funds, depending on the degree of liquidity constraints. Financing growth through internal funds is found to be essential for both liquidity unconstrained and constrained corporates. However, it is observed that the coefficient of cash flow is greater for firms that do not have access to external financing and it eventually decreases with reductions in the magnitude of liquidity constraints, making the least constrained corporates' growth less responsive to internal funds. The results further indicate that smaller and younger firms show higher responsiveness of growth to internal funds. This finding is mainly attributed to financial market imperfections that make external funding difficult for them.

The results suggest that financially constrained firms should expand their corporate size more than the magnitude of positive income shocks they encounter. The study also suggests important policy implications for liquidity-constrained firms to carefully concentrate on their financing strategies to enhance their growth. By improving the corporate's capacity for production, corporates can achieve a faster effect of a potential positive income shock on their growth.

This paper contributes to the literature by constructing a financial constraint index by running the endogenous regression model. It also contributes by investigating the differential impact of credit constraints on firms' growth in Pakistan and how corporate size and age affect firm growth when financial constraints and investment opportunities are controlled.

Scholars have examined the importance of a firm's dividend policy through two competing paradigms: the signalling hypothesis and the free cash‐flow hypothesis. It has been argued that our understanding of dividend policy is hindered by the lack of a model that integrates the two hypotheses. The purpose of this paper is to address this by developing a theoretical dividend model that combines the signalling and free cash‐flow motives. The objective of the analysis is to shed light on the complex relationship between dividend policy, managerial incentives and firm value.

In order to consider the complex nature of dividend policy, a dividend signalling game is developed, in which managers possess more information than investors about the quality of the firm (asymmetric information), and may invest in value‐reducing projects (moral hazard). Hence, the model combines signalling and free cash‐flow motives for dividends. Furthermore, managerial communication and reputation effects are incorporated into the model.

Of particular interest is the case where a firm may need to cut dividends in order to invest in a new value‐creating project, but where the firm will be punished by the market, since investors are behaviourally conditioned to believe that dividend cuts are bad news. This may result in firms refusing to cut dividends, hence passing up good projects. This paper demonstrates that managerial communication to investors about the reasons for the dividend cut, supported by managerial reputation effects, may mitigate this problem. Real world examples are provided to illustrate the complexity of dividend policy.

This work has been inspired by, and develops that of Fuller and Thakor, and Fuller and Blau, which considers the signalling and free cash‐flow motives for dividends. Whereas those authors consider the case where firms only have new negative net present value (NPV) projects available (so that dividend increases provide unambiguously positive signals to the market in both the signalling and free cash‐flow cases), in this paper's model, the signals may be ambiguous, since firms may need to cut dividends to take positive NPV projects. Hence, the model assists in understanding the complexity of dividend policy.

This study compares the motives of holding cash between developed (Australian) and developing (Malaysian) financial markets.

For the period 2006–2020, the t-test, fixed-effect and generalised method of moment (GMM) model have been applied to a sample of 1878 (1,165 Australian and 713 Malaysian) firms.

The empirical results reveal that firms in developed financial markets hold higher cash compared to the developing financial markets. The findings confirm that motives to hold cash differ between developed and developing financial markets. The GMM findings further show that cash holdings (CH) in Australia are higher due to higher ratios of cash flow, research and development (R&D) and return on assets (ROA), and lower due to larger dividend payments. In the Malaysian market, however, cash flows and R&D are ineffectual, ROA falls and dividend payments rise CH.

The study helps managers, practitioners and investors understand that firms' distinct economic, institutional, accounting and financial environments are important. To attain the desired outcomes, they must thus comprehend and consider these considerations while developing suitable liquidity strategies.

To the authors' best knowledge, this is the initial research demonstrating how varied cash motives and their ramifications are in developed and developing financial markets. Therefore, this study identifies the importance that CH motives varied among financial markets and that findings from a particular market cannot be generalised to other markets because of the market and financial structural variations.

This paper aims to examine the mediating effect of dividend payout on the relationship between internal governance mechanisms (board of directors and ownership structure) and the free cash flow level.

Linear regression models are used to investigate such relationships applying data from a sample of 207 non-financial firms listed on the Gulf Cooperation Council countries’ stock markets between 2009 and 2016. To test the significance of mediating effect, the author uses the Sobel test.

The author finds a partial mediation effect of dividend on the relationship between both board independence and managerial ownership and the level of free cash flow. The results confirm the major role of outside directors in corporate governance. This governance mechanism contributes to the protection of shareholders’ interests through a generous dividend policy. However, the author finds that large managerial shareholdings increase the level of free cash flow through lower dividend payouts. This result suggests that powerful managers follow their preference of retaining excess cash to their own interests.

This paper offers insights to policy-makers of emerging economies interested in the development of the corporate governance. This study provides guidance for firms in the construction and implementation of their own corporate governance policies.

The main contribution of the present paper is to examine the dividend payout as a potential mediating variable between internal governance mechanisms and free cash flow. Moreover, it highlights the issue of efficient management of substantial funds in Sharia-compliant and non-Sharia-compliant firms.

The purpose of this paper is to identify firms in the UK adopting a policy of high cash and low leverage and investigate how executive ownership contributes to this decision.

Firms following this policy are identified both by using a fixed classification approach and the analysis of the distribution of cash and leverage. Logit analysis is then used to estimate the probability of adopting the policy as a function of executive ownership.

Extreme financial policies are suboptimal as firms adopting these policies tend to undershoot (overshoot) their target leverage (cash holdings) ratios. The impact of the executive ownership on the probability of adopting this policy is U-shaped, in line with the alignment–entrenchment hypothesis.

Despite the substantial presence of non-executive directors in the boards and a significant amount of shareholdings by executive directors, the firms under analysis have adopted suboptimal financial policies possibly because poorly governed or because executive ownership is the range where entrenchment is feasible.

This is the first attempt at recognising policies of high cash and low leverage as being explicitly interdependent. It is also the first study focussing on the UK, a country of interest, because ownership structure is relatively dispersed. Moreover, instead of choosing fixed threshold levels of the variable in defining the extreme financial policy, this paper proposes the analysis of the distribution of cash holdings and leverage and accounts for target levels of cash and leverage.

The purpose of this paper is to investigate the effect of the control-ownership wedge of controlling shareholders (excess control) on the survival of French initial public offerings (IPOs).

This paper studies a large sample of 434 French IPOs. The empirical analysis uses the Cox proportional hazard and accelerated-failure-time models. Data are manually gathered from IPO prospectuses.

The findings support a positive relation between the control-ownership wedge and IPO survival time, indicating that survival is more likely in firms with high excess control levels. This result is consistent with the view that controlling shareholders with a large control-ownership wedge have incentives to preserve their private benefits of control by increasing firm survival chances. The findings also show that older IPOs are more likely to survive, while riskier and underpriced IPOs are more likely to delist.

The results provide a better understanding of the role of excess control in IPO survival. They also enrich the debate on the efficiency of the one-share-one-vote rule.

The research provides new insights into the role of agency conflicts in IPO survivability. In particular, it explores the effect of dominant shareholders with a control-ownership wedge on survival time.