Profitability, Cash Holdings and Ownership Concentration: Evidence from Greek Panel Data

Transcription

1 Profitability, Cash Holdings and Ownership Concentration: Evidence from Greek Panel Data Chatzimarkaki M., S. Arvanitis, T. Stamatopoulos & D. Terzakis, Dept. of Accounting and Finance, MSc Accounting and Auditing 1

2 Structure Purpose Methodology Findings Value - Research Limitations Policy/Strategy/Practical Implications - Social Implications - 2

3 Purpose We investigate the relationship between liquid assets and ownership concentration, as well as, how they affect on Greek firms performance. 3

4 Methodology We review recent relevant literature, arriving to identify simple Panel Data Models (Fixed or Random Effects FE, RE-), for 217 Greek listed companies, (drawn from Thomson-Reuters Databank), over the period

5 Main Findings Our estimations confirm literature s evidence on the association among Cash Holdings or Ownership Concentration and Firm s Performance. 5

6 We found significant positive relationship between Cash Holdings and Firm s Performance, while, a negative one between Ownership Concentration and Performance. We also found non-linear relations among Cash Holdings or Ownership Concentration and Firm s Performance. 6

7 Value/Contribution We provide additional confirmation on the theoretical causalities of liquid assets or ownership concentration on firms efficiency, from the periphery of the Eurozone (Greek listed co.),

8 Research Limitations We have used simple Static Panel Data Econometric Models (FE, RE) and focus on one country s case study. Further research is needed with Dynamic Panel Data Models (such as Arellano Bond type methods) and multi-country evidence. 8

9 Cash Holding Theories Trade off Theory Pecking order Theory Agency Theory 9

10 Trade off Theory: Firms maximize their values by considering the marginal costs and marginal benefits of holding cash. The optimal liquidity level, is a trade off between the costs and the benefits. 10

11 Pecking order Theory There is no optimal level of cash holdings for a firm. Firms do not have target cash levels, but cash is used as a buffer between retained earnings and investment needs. 11

12 Profitability, Cash Holdings and Ownership Concentration Agency Theory Jensen s agency theory suggests that entrenched managers with poor investment opportunities tend to retain cash rather than pay it out. The agency theory holds 2 hypotheses when it comes to corporate cash holdings: Free Cash-Flow Theory Risk Reduction Hypothesis 12

13 Profitability, Cash Holdings and Ownership Concentration Free Cash-Flow Theory: Managers have an incentive to build up cash, to increase the amount of assets under their control, so as to gain discretionary power over the firm s investment decision. Risk Reduction Hypothesis: cash holdings are considered as risk free investments and therefore a risk averse manager would increase cash holdings to reduce the firm s risk exposure, giving up positive NPV to projects. 13

14 Hypo: The level of liquid assets holding is positively associated with ownership concentration: Effective control requires high ownership concentration, which is achieved at the cost of under diversification (controlling shareholders). Then risk aversion may play a large role pushing firms to hold relatively high levels of liquid assets. 14

15 Sample: 217 Greek companies listed on the Athens Stock Exchange over the period , on an unbalanced panel dataset gives up to 1,580 firms-year obs. to be used in estimating empirical models. Firm s have been classified into economic sectors. Data have been checked for outliers. 15

16 Empirical Model: to test for a non linear relation between cash holdings or ownership and firm s performance: 16

17 The variables: Cash=Cash & short-term investment/total assets Cash 2 = to detect 2 nd order relationship Own=ownership % X share X=[1, 5, 10, 20] Own 2 = to detect 2 nd order relationship size=ln(assets). Leverage=(tot. debt/tot. assets) or (tot. liab./tot. assets) or (tot. debt/mark.capital.) NetWC=(current assets-current liabilitiescash & short-term)total assets 17

18 Capex =Investment = Capital expenditures/total assets Cashflow =(EBITDA - Interest Taxes Dividends)/Total assets Roa = Net income/total shareholders equity growth = the annual % change in total assets. markettobook = (market capitalization / book value of assets). Dividend= dividends paid in a year. ε it = disturbance term. 18

19 We found 19

20 We found 20

21 NetWC, Cash Flow and ROA are statistically significant for firm s performance with positive (+) sign. Cash is marginally significant for firm s performance with positive (+) sign too. Cash 2 and Market-to-Book have marginal significant negative (-) effects on firm s performance. 21

22 Size, NetWC, CapEx, CashFlow, Growth, and Dividends have statistically positive (+) significance for firm s performance. Cash 2 is statistically significant too, to firm s performance, but with negative (-) sign. Constant has marginal negative (-) effect on firm s performance. 22

23 Cash, Own 2, CashFlow, Dividends and Constant, have significant positive (+) effects on efficiency. Cash 2 and Own have significant negative (-) impact on firm s performance. Leverage has marginal positive (+) significance to firm s performance. 23

24 Cash, CashFlow, Dividends and Constant have significant positive (+) effects on firm s performance. Cash 2, Own and Size have significant negative (-) impact on firm s performance. The highest value of constant coeff. (4.197) detected probably due to firm-specific characteristics which have been prevailed. 24

25 Cash, Own 2, CashFlow, Dividends and Constant have significant positive (+) effects on firm s efficiency. Cash 2, Own and Size have significant negative (-) impacts on firm s performance. 25

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29 We found that our estimations are accordant with literature s results. Cash, cash flow and leverage affect firm s performance in a positive way, whereas ownership and size affect firm s performance in a negative way. Capex estimations are not relevant with literature s results as our model is not dynamic. Further research have to been done for dividends estimations. 29

30 THANK YOU VERY MUCH FOR YOUR ATTENTION 30