Are firms as liquid as they appear in annual reports? Journal Articles

abstract

• AbstractFiscal‐year‐end cash holdings are an important indicator in external stakeholders' assessment of a firm's liquidity and credit risk. Do fiscal‐year‐end cash holdings reflect a firm's intra‐year liquidity conditions? We observe that firms report significantly higher cash holdings in the fourth fiscal quarter, followed by a subsequent reversal. This pattern is pervasive across industries, persistent over time, and not explained by conventional factors or calendar effects. The extent of the fourth‐quarter cash increase is more pronounced for informationally opaque firms reliant on external markets and those with financial constraints and reduced monitoring. We investigate firms' real, financing, and timing activities that could potentially account for this pattern. Our study suggests that a complete picture of intra‐year cash holdings dynamics is necessary for external stakeholders to fully assess a firm's liquidity and credit conditions.

authors

• Khokhar, Abdul‐Rahman
• Qiu, Jiaping
• Rahaman, Mohammad M

publication date

• January 1, 2024

has subject area

• 1501 Accounting, Auditing and Accountability (FoR)
• Accounting (Science Metrix)

published in

• Contemporary Accounting Research  Journal

keywords

• Business & Economics
• Business, Finance
• CORPORATE CASH HOLDINGS
• EARNINGS MANAGEMENT
• FINANCIAL CONSTRAINTS
• FLOW
• POLICY
• PREDICTION
• RISK
• STOCK
• Social Sciences
• cash holdings
• credit risk
• dynamiques inherentes aux encaisses monetaires en fin d'exercice financier
• encaisses monetaires
• fiscal-year-end cash dynamics
• liquidite
• liquidity
• risque de credit

Digital Object Identifier (DOI)

• 10.1111/1911-3846.12929