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Financial Innovation

Table 3 Estimation of normal cash holdings

From: Cash holdings, corporate governance, and acquirer returns

 

(1)

(2)

(3)

 

Fixed

Fixed

OLS

ln(Net Assets)

−0.587*** (−16.93)

−0.587*** (−16.95)

−0.155*** (−8.35)

Net Profitability

0.921*** (6.67)

0.905*** (6.48)

0.477*** (2.74)

Net WC

−0.915*** (−7.14)

−0.919*** (−7.22)

−0.771*** (−5.77)

Industry Cash Flow Volatility

0.417 (1.29)

0.417 (1.27)

3.499*** (7.75)

MtoB

0.086*** (11.81)

0.085*** (11.73)

0.171*** (18.98)

R&D

0.102 (0.42)

0.097 (0.39)

3.098*** (11.22)

R&D Dummy

−0.053 (−0.59)

−0.056 (−0.63)

−0.145* (−1.85)

E-index

 

−0.003 (−0.15)

−0.074*** (−4.04)

Pension Ownership

 

−2.267** (−2.12)

−1.137 (−0.87)

Industry NPM

 

0.173 (0.37)

−0.974 (−1.44)

CAPEX

 

−0.035 (−0.13)

−0.226 (−0.55)

Leverage

 

−0.065 (−0.69)

−0.672*** (−6.29)

Dividend Dummy

 

−0.021 (−0.46)

−0.124** (−2.38)

Diversification Dummy

 

0.056 (1.53)

0.042 (0.87)

Intercept

1.534*** (5.51)

1.565*** (5.38)

−0.902*** (−4.14)

Adj. R2

0.790

0.790

0.540

N

10,729

10,729

10,729

  1. The dependent variable is cash holdings, which is a natural log of (cash and short-term investment divided by net assets). Net assets is total assets minus cash and short-term investment. Net Profitability is (operating income before depreciation net of interest and tax) divided by net assets. Net WC is (current assets minus current liabilities and cash and short investment) divided by net assets. Industry CashFlow Volatility is the industry median standard deviation of cash flows over the past 10 years, and industry is defined by the Fama-French 48 industries. The mob is measured as the ratio of the market value of assets to book value of assets, where market value is defined as the book value of assets minus the book value of equity and deferred taxes, plus the market value of equity. R&D is R&D expenses scaled by net assets. When R&D value is missing, we assign a value of zero and add R&D dummy variable having a value of one if R&D expenses are missing and zero otherwise. E-index is the entrenchment index. Pension Ownership is the percentage share ownership held by the 19 largest public pension funds. Industry NPM is the industry median net profit margin. CAPEX is the net capital expenditures divided by net assets. Leverage is long-term debt divided by net assets. Dividend dummy has a value of one if the firm pays dividends and zero otherwise. Diversification dummy has a value of one if the firm has multiple segments and zero otherwise. Models (1) and (2) are estimated with the fixed-effect models with firm-fixed effects and calendar year dummy variables. Model (3) is an ordinary least-squared estimation with calendar year dummy variables and industry fixed effects. Industry is defined at the Fama-French 48 industries. The numbers in parentheses are heteroscedasticity-robust t-stats. All final variables are winsorized at the 1st and 99th percentiles. ***, **, and *denote significance at the 1 %, 5 %, and 10 % levels, respectively
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