Details

Autor(en) / Beteiligte

• Farinha, Jorge
• Mateus, Cesario
• Soares, Nuno

Titel

Cash holdings and earnings quality: evidence from the Main and Alternative UK markets

Ist Teil von

• International review of financial analysis, 2018-03, Vol.56, p.238-252

Ort / Verlag

Elsevier Inc

Erscheinungsjahr

2018

Quelle

Elsevier ScienceDirect Journals

Beschreibungen/Notizen

• In this paper we investigate the importance of earnings quality as a determinant of cash holdings by companies, exploring among other factors the nature of earnings (positive or negative) and the level of financial disclosure, proxied by the market where firms are listed (Main or AIM-Alternative Investment Markets in the United Kingdom). Based on a sample covering the period of 1998–2015, we provide evidence that as earnings quality decreases, firms tend to hold more cash except when firms are facing losses in both Main and AIM markets. In addition, we document that information conveyed by earnings quality is a more important determinant of cash reserve levels for Main Market than for AIM firms (where the level of financial disclosure and oversight is lower). Overall, our evidence suggests that cash balances are positively influenced by the presence of greater information asymmetries arising from poor earnings quality but also from the existence of lower levels of regulatory oversight and the occurrence of losses, both of which reduce the importance of earnings quality as a determinant of cash levels. Our results also imply that companies with higher levels of earnings opaqueness seem to benefit from having higher cash holdings so as to avoid dependence from costly external funding. •We analyse earnings quality as a determinant of cash holdings in theAIM and Main UK markets•Evidence is provided that as earnings quality decreases, firms tend to hold more cash except whem they face losses•Results also show that earnings quality is a more important determinant of cash levels for Main market than for AIM firms•We conclude that firms with greater earnings opaqueness accumulate cash to reduce dependence from costly external financing