We thank the Editor Robert Faff and an anonymous reviewer for helpful comments and suggestions. Other constructive feedback has been given by Alessandra Guariglia, Félix-Lopez Itturiaga, Ludo Peeters, Sigrid Vandemaele and Wim Voordeckers. Previous versions of this manuscript have been presented at the 2009 FMA Annual Meeting (Reno), an E&F Research Seminar (Durham, UK), the 2010 Benelux Corporate Finance Day (Groningen, Holland) and an AFI seminar (KU Leuven, Belgium).
Why do firms save cash from cash flows? evidence from firm-level estimation of cash–cash flow sensitivities
Article first published online: 20 JUN 2013
© 2013 AFAANZ
Accounting & Finance
How to Cite
D'Espallier, B., Huybrechts, J., Schoubben, F. (2013), Why do firms save cash from cash flows? evidence from firm-level estimation of cash–cash flow sensitivities. Accounting & Finance. doi: 10.1111/acfi.12027
- Article first published online: 20 JUN 2013
- Manuscript Accepted: 2 APR 2013
- Manuscript Received: 8 DEC 2011
- Cash holdings;
- Cash-cash flow sensitivities;
- Firm-level estimation;
- Bayesian estimation
We construct firm-level estimates for the cash flow sensitivity of cash (CCFS) by modelling heterogeneous slopes in reduced-form cash equations. This approach allows identifying firms with a high, low or even negative savings propensity. We find that high CCFS firms have higher income variation, suggesting cash buffering is triggered by income shocks. High CCFS firms do not suffer from financing constraints measured by a wide selection of indicators. Our results suggest that the CCFS is not an adequate indicator to capture financing constraints. Rather, a higher CCFS indicates smoothing of income fluctuations by installing a cash buffer that successfully prevents future income shortfall.