Listing, delisting, and financial norms: a quantile decomposition of firm balance sheets

Leila E. Davis (), Joao Paulo A. de Souza () and Gonzalo Hernandez ()
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Leila E. Davis: University of Massachusetts Boston
Joao Paulo A. de Souza: University of Massachusetts Boston
Gonzalo Hernandez: Pontificia Universidad Javeriana

Journal of Evolutionary Economics, 2023, vol. 33, issue 4, No 9, 1259-1302

Abstract: Abstract In this paper, we show that the churning generated by listing and delisting is a key mechanism for disseminating new financial norms regarding cash and debt among listed nonfinancial firms in the U.S. after 1980. Over this period, cash holdings have grown markedly across the distribution of listed U.S. nonfinancial corporations, while indebtedness has fallen in less indebted firms. Surprisingly, these trends are particularly dramatic among the most financially fragile listed firms, which generate insufficient cash flows to service their financial obligations (what Minsky terms ‘Ponzi’ firms). In this paper, we use quantile decompositions to show that these long-term trends in cash and debt are driven by churning among listed firms during the 1980s and 1990s, when listing and delisting rates are high. The reason is that firms list with more cash and less debt, and delist with less cash and more debt, than continuing firms. This mechanism is particularly strong among listed Ponzi firms. Our results highlight the importance of institutional changes surrounding access to equity finance and Initial Public Offerings, rather than changing behavior within continuing firms, for trends in listed firms’ financing behavior since 1980.

Keywords: Cash holdings; Leverage; Financial norms; Minsky; Financial fragility (search for similar items in EconPapers)
JEL-codes: E03 G30 L1 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00191-023-00815-9

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