StudentShare solutions
Triangle menu

Financial Conservatism. Determinants of cash and leverage conservatism in USA firms - Dissertation Example

Extract of sample
Financial Conservatism. Determinants of cash and leverage conservatism in USA firms

Microsoft, Exxon, Apple are all examples of non-financial firms that have held huge stockpiles of cash1. According to a recent San Francisco Chronicle report, Apple reportedly has a stockpile of $137 Billion, and the company justifies this by saying that it is “preserving its options”2. In financial literature, a firm which holds more cash reserves or lower leverage than is optimal according to capital structure is known to be financially conservative. To avoid having to depend on costly external sources of debt, having spare debt capacities by maintaining low liabilities to total asset ratios is important. Also for the same reason, retaining adequate cash reserves is also important. From 1980 to 2004, the average cash-to-asset ratio for industrial US firms has increased by 129 percent. During the same time period, net debt for these firms has fallen substantially (Bates et al, 2009). Therefore, on average these firms seem to have adopted more financially conservative practices in both senses by reducing leverage and increasing cash holdings simultaneously. However, much of the reduction in net debt is attributed to higher cash holdings rather than any reduction in liabilities. In general financial conservatism has become a very relevant topic of study in this backdrop. In this context, this paper studies the characteristics of financially conservative firms. The main objective is to see whether financially conservative practices can protect firms from being distressed and what effects the financial crisis had on financially conservative practices. Barring Iona, Leonida and Ozkan (2004), Prior research has focused on analysing conservative behaviour of firms from either the perspective of holding excessively high cash balances or from the perspective of maintaining lower than optimal leverage levels. Iona, Leonida and Ozkan (2004) look at non-financial financially conservative UK firms that adopt both these practices simultaneously. No work prior work has examined the coexistence of both cash conservative and leverage conservative practices for US firms. Using a large sample of industrial US firms over the period of 2002-2011, I enquire into the nature of financial conservatism. Since a firm is financially conservative if it is conservative in terms of holding extra cash reserves as well as maintaining low leverage, I start off by looking at the determinants of cash conservativeness and the determinants of leverage conservativeness. Then I look at what are the important characteristics of firms that contribute to making its financial practices conservative in general. In particular, I ask, what factors influence the probability of a firm being both cash and leverage conservative at the same time. After determining the important factors, I turn to the critical question of how financial conservatism affects the probability of a firm being financially distressed. The major contributions of this paper are twofold: first, extending the literature on conservative firms which adopt both cash and leverage conservatism simultaneously and second, applying the theory of jointly cash and leverage conservative practices to characterize conservative US firms which have not been examined in literature at all. The rest of the paper is structured as follows. Section II presents a review of the relevant literature. This section lays out the ...Show more
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Financial Conservatism. Determinants of cash and leverage conservatism Dissertation”, n.d.)
Retrieved from https://studentshare.net/finance-accounting/99172-financial-conservatism-determinants-of-cash-and
(Financial Conservatism. Determinants of Cash and Leverage Conservatism Dissertation)
https://studentshare.net/finance-accounting/99172-financial-conservatism-determinants-of-cash-and.
“Financial Conservatism. Determinants of Cash and Leverage Conservatism Dissertation”, n.d. https://studentshare.net/finance-accounting/99172-financial-conservatism-determinants-of-cash-and.
  • Cited: 0 times

Summary

The financial crisis, conservatism and distress; evidence from industrial US firms I. Introduction The global financial crisis has made firms face many difficult challenges. Retaining financial flexibility, which is the ability to respond adequately to unexpected events, has become very important for firms in the backdrop of the current financial crisis…
Financial Conservatism. Determinants of cash and leverage conservatism in USA firms
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the dissertation on your topic
"Financial Conservatism. Determinants of cash and leverage conservatism in USA firms"
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Financial Conservative Policies Depend on Financial Distress
Financial conservatism is the attitude that the financial statements of many companies operating either in a risk prone environment or undergoing a tough financial phase, are found to adopt. These policies typically, reflect an environment where the companies are endowed with large cash balances and low leverage.
17 pages (4250 words) Dissertation
Capital structure of firms

This paper represents a financial desertion on capital structure of public limited companies in United Kingdom at pre and post financial crisis.  As, financial crisis in an economy or market has major impact on capital structure of each and every firms in the market which results a overall change in capital structure of that market.

33 pages (8250 words) Dissertation
Investigate whether financial conservative policies depend on financial distress
It describes the theory behind financially conservative policies and looks at a group of firms which are deemed to be financially conservative in an industry that is highly sensitive to financial distress and compares them with a control group which is less sensitive.
4 pages (1000 words) Dissertation
Embracing Cash Flow Ratios for predicting financial future
Further, I am greatly thankful to the numerous colleagues; and friends whose work greatly facilitate me to comprehend the main theme of this research work. Financial ratios have failed to accurately predict the financial position of companies.
72 pages (18000 words) Dissertation
Investigate whether Financial Conservative Policies Depend on Financial Distress
‘Financial conservatism’ [Online]. Available at http://www.deloitte.com/view/en_BE/be/insights/surveys/cfo-survey/q3-2009/6a3ec682d7895210VgnVCM200000bb42f00aRCRD.htm [Accessed: June 29, 2011]. 21 Bibliography 23 Gujarati, D. N. (2008) Basic Econometrics (4th Edition).
24 pages (6000 words) Dissertation
Determinants of financial conservatism: evidence from low leverage and cash rich UK and German firms
The theoretical framework will analyze the theoretical applications of the model. The data used to construct the theoretical analysis presented in this discourse will be presented in this section and the empirical framework will present an analysis of the empirical data available regarding the implications for the model.
24 pages (6000 words) Dissertation
Evidence of cash conservative and low-leverage firms in UK and Germany
An empirical analysis of the financials of several firms in both countries is conducted to compare the magnitude of cash conservatism and leverage. The study is based upon basic theories of Financial Conservatism and Agency problems related to economic distress.
27 pages (6750 words) Dissertation
Determinants of financial conservatism in the United Kingdom and France
This study indicates that financial conservatism is critical to set an effective corporate governance system in any firm. The cases study of ECB, Alcatel-Lucent, and Ericsson presented here support this evidence, although the test sample is narrow. We have provided evidence that financial conservatism is independent of financial distress.
46 pages (11500 words) Dissertation
Investigation of financial conservatism in the United Kingdom and China
The Agency problem is discussed as it correlates with corporate financial policy. Specific theories of financially conservative policies are defined and compared to gain insight into possible relationships between economic financial crises and the strategies or firms that are considered financially conservative.
28 pages (7000 words) Dissertation
Financial Conservatism. Determinants of cash and leverage
Mikkelson and Partch provide that financially conservative firms are those that continually hold huge cash balances to finance their financial activities, meaning that they hardly rely on borrowed capital to finance their investment opportunities. A firm means the one that holds more than 25% of its assets in cash.
18 pages (4500 words) Dissertation
Comments (0)
Click to create a comment
Let us find you another Dissertation on topic Financial Conservatism. Determinants of cash and leverage conservatism in USA firms for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us