Capital structure : importance of cash management in financing decisions

• Autor(a) principal: Mota, António José Gomes Cardoso
• Data de Publicação: 2019
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/28781
• topic: Leverage; Cash holdings; Capital structure; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

The present work aggregates some theoretical knowledge concerning capital structure aiming to provide a holistic view over the topic, with the objective of reinforce the idea and importance of liquidity as part of the Capital Structure definition. The study was made over data representative of the European and American firms (patent in STOXX600 and S&P500 indexes respectively) over the period of 2001 to 2016. The paper follows a methodology similar to the one found in Frank & Goyal (2009), using the several regressions and creating models by selecting the factors that are found to consistently being part of the minimum bayesian information criterion and appear with coefficients statistically significant. The selection of “the most important variables” were made for measures of leverage, liquidity and net leverage. It is also studied the approach of the theoretical models and how thy explain the results by matching expectations created in the first with the coefficients signals found. The theoretical models approached, as in literature review is described are the “trade-off”, “pecking order”, “agency” or “free cash flow theory”, “managerial optimism” and “market timing”. The principal conclusions are that for leverage the “most reliable” variables are growth (with a negative relation (-)), dividends (-), size (+), industry median leverage (+), cash holding’s average (-), free cash flow (-) and working capital (-). Mainly the significance of industry median leverage and cash holding’s average (define two targets leverage and liquidity) are the most important evidence of the tradeoff theory expectations. For liquidity the best variables found were the nature of assets (-), industry median cash holdings (+), cash holdings average (+), working capital (-), stock issuances (+), spread rate (+). In the two models is reflected predominance of the tradeoff theory for explanation of the relations, (even though there are some variables that it is not observable). The model of net leverage appears to be explained better by industry median leverage (+), cash holding’s average (-), free cash flow (-) and working capital (-), stock repurchases (+), overinvestment (-) and risk (-). From those it was found that the model incorporates the common variables of liquidity and leverage (cash holdings average and working capital). It was found consistently that leverage and debt have negative relation, not only for the coefficients found in incorporating liquidity as independent variable, but also comparing the coefficients behavior of the same factors when explaining at the same time leverage, liquidity and net leverage. This paper presents a theoretical suggestion that the pecking order and tradeoff theory are not independent theories, but they complement each other, and the results provided, even insufficient, are consistent with that, as it is indicated, the targets for optimal decisions explained by the tradeoff and some significant variables which the relations with the dependent variables are better explained by the pecking order.