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International evidence of nexus between positive operating cash activities and cost of debt

Author

Listed:
  • Harit Satt

    (School of Business Administration, Al Akhawayn University, Ifrane, Morocco)

  • Dr Saadani Ghali

    (Université Mohammed V - Agdal)

Abstract

This paper identifies the affiliation between the ending cash balance of the operating section in the cash flow statement and the bonds ratings. Our sample includes 600 companies from 26 countries. The study was conducted over a period of 18 years. An Ordered Probit regression analysis had been applied to identify how the positive cash balance of the operating section in the cash flow statement shapes the probability of escalating the bonds ratings. We find burly proof that the positive operating cash balance considerably affects the bonds ratings. In other words, when a company is able to generate enough cash from its main operating activities, the likelihood of having higher bonds ratings raises; this entails a low cost of debt since higher bond ratings have been proven to lessen the company’s cost for raising funds (in the form of bonds). The results add more confirmation to the creditors’ rights shields and how it affects the cost of debt.

Suggested Citation

  • Harit Satt & Dr Saadani Ghali, 2015. "International evidence of nexus between positive operating cash activities and cost of debt," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 3(4), pages 41-49, August.
    • Handle: RePEc:lrc:lareco:v:3:y:2015:i:4:p:41-49
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    More about this item

    Keywords

    Credit ratings; default risk; operating cash position.;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects

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