Persistent negative cash flows, staged financing, and the stockpiling of cash balances

David J. Denis and Stephen B. McKeon

Journal of Financial Economics, 2021, vol. 142, issue 1, 293-313

Abstract: Firms with negative net cash flows (NCFs) play an empirically important role in recent decades’ increase in the average cash-balance ratio of publicly held non-financial firms. Since 1971, negative NCFs have become much more pervasive, persistent, and greater in magnitude, and these patterns hold within the growing set of firms that have high intangible capital. In recent years, firms with negative NCFs tend to build cash balances through frequent equity offerings. The high cash balances tend to be transitory as subsequent negative NCFs lead firms to rapid cash-balance drawdowns, often followed by new stock sales and cash stockpiling of the proceeds. We conclude that funding needs and staged equity financing by negative NCF firms are central features of the secular rise in the average cash-balance ratio.

Keywords: Negative cash flow; Staged financing; Cash balance (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:142:y:2021:i:1:p:293-313

DOI: 10.1016/j.jfineco.2021.04.038

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