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Persistent negative cash flows, staged financing, and the stockpiling of cash balances

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  • Denis, David J.
  • McKeon, Stephen B.

Abstract

Firms with negative net cash flows (NCFs) play an empirically important role in recent decades’ increase in the average cash-balance ratio of publicly held non-financial firms. Since 1971, negative NCFs have become much more pervasive, persistent, and greater in magnitude, and these patterns hold within the growing set of firms that have high intangible capital. In recent years, firms with negative NCFs tend to build cash balances through frequent equity offerings. The high cash balances tend to be transitory as subsequent negative NCFs lead firms to rapid cash-balance drawdowns, often followed by new stock sales and cash stockpiling of the proceeds. We conclude that funding needs and staged equity financing by negative NCF firms are central features of the secular rise in the average cash-balance ratio.

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  • Denis, David J. & McKeon, Stephen B., 2021. "Persistent negative cash flows, staged financing, and the stockpiling of cash balances," Journal of Financial Economics, Elsevier, vol. 142(1), pages 293-313.
    • Handle: RePEc:eee:jfinec:v:142:y:2021:i:1:p:293-313
    DOI: 10.1016/j.jfineco.2021.04.038
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    Cited by:

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    2. Blomkvist, Magnus & Korkeamäki, Timo & Takalo, Tuomas, 2022. "Learning and staged equity financing," Journal of Corporate Finance, Elsevier, vol. 74(C).
    3. Harry DeAngelo & Andrei S Gonçalves & René M Stulz, 2022. "Leverage and Cash Dynamics [Is cash negative debt? A hedging perspective on corporate financial policies]," Review of Finance, European Finance Association, vol. 26(5), pages 1101-1144.
    4. Chen, Hsuan-Chi & Chou, Robin K. & Lu, Chien-Lin, 2021. "Misvaluation and the corporate propensity to hold cash," Journal of Corporate Finance, Elsevier, vol. 70(C).
    5. Heeney, Luke & Yang, Shanelle & Chowdhury, Hasibul & Tan, Kelvin Jui Keng, 2023. "Corporate cash holdings through economic policy uncertainty: An Australian study," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Negative cash flow; Staged financing; Cash balance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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