Impact of the cash position on the performance of Brazilian companies during
     periods of economic recession

Bortoluzzo, Adriana; Bortoluzzo, Mauricio; Ferreira, Mario M. S.

doi:10.1590/1678-6971/eRAMF230039.en

Acessibilidade / Reportar erro

Brasil

RAM. Revista de Administração Mackenzie

Español English

Brasil

Español English

sumário « anterior atual seguinte »

Sumário

Strategic Finance • RAM, Rev. Adm. Mackenzie 24 (3) • 2023 • https://doi.org/10.1590/1678-6971/eRAMF230039.en copy

Impact of the cash position on the performance of Brazilian companies during periods of economic recession

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

Purpose:

This study aims to analyze if, during periods of economic recession, the cash position impacts the performance of Brazilian companies. In addition, it seeks to identify if there are differences in the intensity of such relationships for the different sectors in which companies operate.

Originality/value:

The appropriate management of a company’s cash position is key for the maintenance of its financial health in the long term. This subject is particularly relevant for emerging countries, such as Brazil, considering the track record of frequent economic recessions. Such economic recessions lead to the deterioration of the companies’ operating results and shortage of credit facilities, negatively affecting the companies’ liquidity. In the last decade, studies have been discussing the relevance of the companies’ cash position to improve their performance in periods of financial constraint.

Design/methodology/approach:

To develop this study, a sample composed of 200 Brazilian companies listed on B3 was used, grouping information from the period between 2013 and 2016, organized in a balanced dynamic panel.

Findings:

The results obtained through regressions indicate that there is a positive and statistically significant relationship between cash position and the performance of the companies, measured by the return on assets (ROA) – but not by the market to book ratio –, and it was also identified that the sector in which the company operates has a moderating factor on the intensity of such a relationship.

Keywords:
cash position; performance; recession; panel data; sector

Recessions				Expansions
Period	Duration in # of quarters	Accumulate growth from peak to valley	Quarterly growth average (annualized)	Period	Duration in # of quarters	Accumulate growth from peak to valley	Quarterly growth average (annualized)
1Q 1981 to 1Q 1985	9	−8.5%	−3.9%	2Q 1983 to 2Q 1987	17	30.0%	6.4%
3Q 1987 to 4Q 1988	5	−42%	−2.8%	1Q 1989 to 2Q 1989	2	3.5%	17.7%
3Q 1989 to 1Q 1992	11	−7.7%	−2.9%	2Q 1992 to 1Q 1995	12	19.2%	6.0%
2Q 1995 to 3Q 1995	2	−2.8%	−5.5%	4Q 1995 to 4Q 1997	9	3.0%	3.,5%
1Q 1998 to 1Q 1999	5	−1.1%	−0.9%	2Q 1999 to 1Q 2001	5	7.3%	3.6%
2Q 2001 to 4Q 2001	2	−0.9%	−1.1%	1Q 2002 to 4Q 2002	4	5.2%	5.2%
1Q 2003 to 2Q 2003	2	−1.5%	−3.0%	3Q 2003 to 3Q 2008	21	30.2%	5.2%
4Q 2008 to 1Q 2009	2	−5.1%	−10.0%	20 2009 to 1Q 2014	20	22.5%	4.1%
2Q 2014 to 4Q 2016	11	−8.0%	−3.0%	1Q 2017 to 4Q 2019	12	5.1%	1.7%

Sample	Number of companies	Number of observations	Percentage (%)
Initial sample	340	1,360	100%
(-) Financial institutions and insurance companies	12	48	−4%
(-) Holdings	27	108	−8%
(-) Companies with missing data	97	388	−29%
Partial sample 1	204	816	60%
(-) Outliers	4	16	1%
Final sample	200	800	59%

Variable	Type	Definition	Reference	Signs
ROA	Dependent	EBITDA (Total assets)	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010... , Adjei (2013)Adjei, F. (2013). The effects of cash holdings on corporate performance during a credit crunch: Evidence from the sub-prime mortgage crisis. Journal of Economics and Finance, 37, 188–199. https://doi.org/10.1007/s12197-011-9177-8 https://doi.org/10.1007/s12197-011-9177-... , and Forti et al. (2011)Forti, C. A. B., Peixoto, F. M., & Freitas, K. S. (2011). Retenção de caixa, desempenho operacional e valor: Um estudo no mercado de capitais brasileiro. Revista de Contabilidade e Organizações, 5(13), 20–33. https://doi.org/10.11606/rco.v5i13.34802 https://doi.org/10.11606/rco.v5i13.34802...
Market to book ratio	Dependent	$\frac{M a r k e t V a l u e}{B o o k V a l u e}$	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010... , Forti et al. (2011)Forti, C. A. B., Peixoto, F. M., & Freitas, K. S. (2011). Retenção de caixa, desempenho operacional e valor: Um estudo no mercado de capitais brasileiro. Revista de Contabilidade e Organizações, 5(13), 20–33. https://doi.org/10.11606/rco.v5i13.34802 https://doi.org/10.11606/rco.v5i13.34802... , Kim and Bettis (2013)Kim, C., & Bettis, R. A. (2013). Cash is surprisingly valuable as a strategic asset. Strategic Management Journal, 35(13), 2053–2063. https://doi.org/10.1002/smj.2205 https://doi.org/10.1002/smj.2205... , O'Brien and Folta (2009), and Deb et al. (2017)Deb, P., David, P., & O’Brien, J. P. (2017). When is cash good or bad for firm performance? Strategic Management Journal, 38(2), 436–454. https://doi.org/10.1002/smj.2486 https://doi.org/10.1002/smj.2486...
z-cash (t - 1)	Independent	Variable defined in Equation 1, with a one-year lag.	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010... and Forti et al. (2011)Forti, C. A. B., Peixoto, F. M., & Freitas, K. S. (2011). Retenção de caixa, desempenho operacional e valor: Um estudo no mercado de capitais brasileiro. Revista de Contabilidade e Organizações, 5(13), 20–33. https://doi.org/10.11606/rco.v5i13.34802 https://doi.org/10.11606/rco.v5i13.34802...	+
ROA (t - 1)	Control	$\frac{E B I T D A_{t - 1}}{T o t a l a s s e t s_{t - 1}}$	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010...	+
Market to book (t - 1)	Control	$\frac{M a r k e t V a l u e_{t - 1}}{B o o k V a l u e_{t - 1}}$	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010... , Kim and Bettis (2013)Kim, C., & Bettis, R. A. (2013). Cash is surprisingly valuable as a strategic asset. Strategic Management Journal, 35(13), 2053–2063. https://doi.org/10.1002/smj.2205 https://doi.org/10.1002/smj.2205... , O'Brien and Folta (2009), and Deb et al. (2017)Deb, P., David, P., & O’Brien, J. P. (2017). When is cash good or bad for firm performance? Strategic Management Journal, 38(2), 436–454. https://doi.org/10.1002/smj.2486 https://doi.org/10.1002/smj.2486...	+
Size adj. sector (t - 1)	Control	$\frac{I n (a s s e t s_{t - 1} - a v g I n (a s s e t s_{t - 1}) s e c t o r}{s t a n d a r d d e v i a t i o n I n (a s s e t s_{t - 1}) s e c t o r}$	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010... and Forti et al. (2011)Forti, C. A. B., Peixoto, F. M., & Freitas, K. S. (2011). Retenção de caixa, desempenho operacional e valor: Um estudo no mercado de capitais brasileiro. Revista de Contabilidade e Organizações, 5(13), 20–33. https://doi.org/10.11606/rco.v5i13.34802 https://doi.org/10.11606/rco.v5i13.34802...	+
Leverage adj. sector (t - 1)	Control	$\frac{(\frac{L e v e r a g e_{t - 1}}{A s s e t s_{t - 1}}) - a v g (\frac{L e v e r a g e_{t - 1}}{A s s e t s_{t - 1}}) s e c t o r}{s t a n d a r d d e v i a t i o n \frac{L e v e r a g e_{t - 1}}{A s s e t s_{t - 1}} s e c t o r}$	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010... , Adjei (2013)Adjei, F. (2013). The effects of cash holdings on corporate performance during a credit crunch: Evidence from the sub-prime mortgage crisis. Journal of Economics and Finance, 37, 188–199. https://doi.org/10.1007/s12197-011-9177-8 https://doi.org/10.1007/s12197-011-9177-... , and Forti et al. (2011)Forti, C. A. B., Peixoto, F. M., & Freitas, K. S. (2011). Retenção de caixa, desempenho operacional e valor: Um estudo no mercado de capitais brasileiro. Revista de Contabilidade e Organizações, 5(13), 20–33. https://doi.org/10.11606/rco.v5i13.34802 https://doi.org/10.11606/rco.v5i13.34802...	−
Investments adj. sector (t - 1)	Control	$\frac{(\frac{F i x e d a s s e t s_{t - 1}}{f i x e d a s s e t s_{t - 1}} - 1) - a v g (\frac{F i x e d a s s e t s_{t - 1}}{l i m o b_{t - 2}} - 1) s e c t o r}{s t a n d a r d d e v i a t i o n o f (\frac{F i x e d a s s e t s_{t - 1}}{f i x e d a s s e t s_{t - 2}} - 1) s e c t o r}$	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010... and Forti et al. (2011)Forti, C. A. B., Peixoto, F. M., & Freitas, K. S. (2011). Retenção de caixa, desempenho operacional e valor: Um estudo no mercado de capitais brasileiro. Revista de Contabilidade e Organizações, 5(13), 20–33. https://doi.org/10.11606/rco.v5i13.34802 https://doi.org/10.11606/rco.v5i13.34802...	+
∆ growth adj. sector (t - 1)	Control	$\frac{(\frac{R e v e n u e s_{t - 1}}{R e v e n u e s_{t - 2}} - 1) - a v g (\frac{R e v e n u e s_{t - 1}}{R e v e n u e s_{t - 2}} - 1) s e c t o r}{s t a n d a r d d e v i a t i o n (\frac{R e v e n u e s_{t - 1}}{R e v e n u e s_{t - 2}} - 1) s e c t o r}$	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010... and Forti et al. (2011)Forti, C. A. B., Peixoto, F. M., & Freitas, K. S. (2011). Retenção de caixa, desempenho operacional e valor: Um estudo no mercado de capitais brasileiro. Revista de Contabilidade e Organizações, 5(13), 20–33. https://doi.org/10.11606/rco.v5i13.34802 https://doi.org/10.11606/rco.v5i13.34802...	+
Payout(t - 1)	Control	Dummy to identify if the company pays dividends.	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010...	+
Sector	Control	Dummy for each of the sectors in which the companies operate (basic materials, industry, consumers, health, public utility, others).	Fresard (2010)Fresard, L. (2010). Financial strength and product market behavior: The real effects of corporate cash holdings. The Journal of Finance, 65(3), 1097–1122. https://doi.org/10.1111/j.1540-6261.2010.01562.x https://doi.org/10.1111/j.1540-6261.2010... , Forti et al. (2011)Forti, C. A. B., Peixoto, F. M., & Freitas, K. S. (2011). Retenção de caixa, desempenho operacional e valor: Um estudo no mercado de capitais brasileiro. Revista de Contabilidade e Organizações, 5(13), 20–33. https://doi.org/10.11606/rco.v5i13.34802 https://doi.org/10.11606/rco.v5i13.34802... , Adjei (2013)Adjei, F. (2013). The effects of cash holdings on corporate performance during a credit crunch: Evidence from the sub-prime mortgage crisis. Journal of Economics and Finance, 37, 188–199. https://doi.org/10.1007/s12197-011-9177-8 https://doi.org/10.1007/s12197-011-9177-... , Kim and Bettis (2013)Kim, C., & Bettis, R. A. (2013). Cash is surprisingly valuable as a strategic asset. Strategic Management Journal, 35(13), 2053–2063. https://doi.org/10.1002/smj.2205 https://doi.org/10.1002/smj.2205... , O'Brien and Folta (2009), and Deb et al. (2017)Deb, P., David, P., & O’Brien, J. P. (2017). When is cash good or bad for firm performance? Strategic Management Journal, 38(2), 436–454. https://doi.org/10.1002/smj.2486 https://doi.org/10.1002/smj.2486...	+

Variable	Year	Average	Median	Standard deviation	Min.	Max.
ROA	2013	9.93%	9.72%	8.40%	−35.98%	38.35%
	2014	7.98%	8.97%	9.88%	−62.66%	30.74%
	2015	5.84%	7.38%	11.85%	−88.04%	30.69%
	2016	5.04%	7.44%	13.80%	−97.46%	33.40%
Market to book	2013	1.85	1.22	2.90	−14.97	26.08
	2014	1.57	1.04	2.28	−2.17	23.55
	2015	0.89	0.74	7.87	−103.23	23.19
	2016	1.68	0.91	2.62	−1.11	21.38
z-cash (t - 1)	2013	0.00	−0.20	0.99	−1.37	5.13
	2014	0.00	−0.18	0.99	−1.50	4.95
	2015	0.00	−0.19	0.99	−1.48	4.92
	2016	0.00	−0.18	0.99	−1.43	4.82
Size	2013	14.93	15.03	1.67	9.69	20.44
	2014	14.99	15.17	1.72	9.64	20.49
	2015	15.03	15.16	1.77	9.85	20.62
	2016	14.99	15.09	1.78	10.11	20.51
Investments	2013	5.21%	3.03%	30.31%	−99.44%	227.63%
	2014	6.49%	3.03%	30.09%	−72.37%	202.45%
	2015	11.45%	3.39%	71.53%	−67.22%	870.63%
	2016	−3.32%	−3.10%	22.60%	−86.57%	154.19%
Leverage	2013	0.31	0.31	0.19	0.00	1.26
	2014	0.33	0.32	0.20	0.00	1.11
	2015	0.34	0.34	0.23	0.00	1.44
	2016	0.34	0.33	0.25	0.00	2.00
Δ growth	2013	8.45%	9.26%	25.58%	−91.85%	193.08%
	2014	8.07%	6.51%	27.21%	−81.98%	189.72%
	2015	1.30%	3.20%	22.79%	−83.51%	102.09%
	2016	−6.50%	−2.62%	24.29%	−116.03%	86.41%

Total sample	ROA	(1)	(2)	(3)	(4)	(5)	(6)
Market to book (1)	0.1633*	1.0000	-	-	-	-	-
z-cash (t - 1) (2)	0.1626*	0.1835*	1.0000	-	-	-	-
Size (3)	0.2015*	0.0708*	0.0279	1.0000	-	-	-
Investments (4)	0.1720*	0.0824*	0.0791*	0.0983*	1.0000	-	-
Leverage (5)	−0.1694*	−0.0701*	−0.0261	0.1145*	−0.0475	1.0000	-
Δ growth (6)	0.3390*	0.0593	0.0630	0.1545*	0.2618*	−0.0373	1.0000
Payout (7)	0.3550*	0.1320*	0.1471*	0.3559*	0.1212*	−0.2460*	−0.1156*
ROA (t - 1)	0.5890*	0.1424*	0.1500*
Market to book (t - 1)	0.1807*	0.2899*	0.2029*

Sector	Correlation (ROA, z-cash t - 1)	Correlation (Market to book, z-cash t - 1)
Industry	0.0282	−0.1169
Consumers	0.2331*	0.2801*
Basic materials	0.1427	0.0371
Others	−0.0713	0.3439*
Health	0.4194*	0.3522*
Public utility	0.2079*	0.3037*

Regressions	Model 1	Model 2	Model 3	Model 1	Model 2	Model 3
Dependent variable	ROA	ROA	ROA	Market to book	Market to book	Market to book
z-cash (t - 1)		0.0057***	0.0036**		0.0635	0.0022
z-cash (t - 1)		(0.0021)	(0.0018)		(0.0938)	(0.1190)
ROA (t - 1)	0.7401***	0.7181***	0.7088***
ROA (t - 1)	(0.0919)	(0.0923)	(0.1066)
Market to book (t - 1)				0.7115***	0.7048***	0.6931***
Market to book (t - 1)				(0.08496)	(0.0923)	(0.1105)
Size adj. sector (t - 1)	0.0020	0.0023	0.0008	0.0724	0.0751	0.0765
Size adj. sector (t - 1)	(0.0021)	(0.0020)	(0.0020)	(0.0544)	(0.0577)	(0.0593)
Investment adj. sector (t - 1)	0.0035	0.0035	0.0036	0.0309	0.0296	0.0352
Investment adj. sector (t - 1)	(0.0084)	(0.0083)	(0.0096)	(0.1058)	(0.1049)	(0.1073)
Leverage adj. sector (t - 1)	−0.0449**	−0.0456**	−0.0398**	−0.9283*	−0.9450*	−0.8855*
Leverage adj. sector (t - 1)	(0.0239)	(0.0232)	(0.0201)	(0.5436)	(0.5453)	(0.5332)
Δ growth adj. sector (t - 1)	0.0457***	0.0451***	0.0513***	0.0738	0.0693	0.0686
Δ growth adj. sector (t - 1)	(0.0114)	(0.0113)	(0.0123)	(0.1600)	(0.1577)	(0.1584)
Payout dummy	0.0143**	0.0138**	0.0182**	0.1138	0.0980	0.1184
Payout dummy	(0.0079)	(0.0072)	(0.0088)	(0.2330)	(0.2215)	(0.2341)
VarIbov	No	No	No	2.054*	2.0379*	2.0137*
VarIbov	No	No	No	(1.1066)	(1.0927)	(1.0662)
z-cash (t - 1) Industry			0			0
z-cash (t - 1) Industry			(omitted)			(omitted)
z-cash (t - 1) Consumers			0.0104			0.1391
z-cash (t - 1) Consumers			(0.0070)			(0.2787)
z-cash (t - 1) Basic materials			0.0019			−0.0956
z-cash (t - 1) Basic materials			(0.0066)			(0.2378)
z-cash (t - 1) Others			0.0083			0.1310
z-cash (t - 1) Others			(0.0110)			(0.1539)
z-cash (t - 1) Health			0.0176**			0.1770
z-cash (t - 1) Health			(0.0084)			(0.3475)
z-cash (t - 1) Public utility			0.0101*			0.0621
z-cash (t - 1) Public utility			(0.0056)			(0.1515)
Dummy sector	Yes	Yes	Yes	Yes	Yes	Yes
Instrumental variables	Yes	Yes	Yes	Yes	Yes	Yes
Constant	−0.0098	−0.0058	0.0142	0.2166	0.2374	0.3439*
Constant	(0.0080)	(0.0096)	(0.0128)	(0.2063)	(0.2086)	(0.1966)
Observations	800	800	800	800	800	800
Companies	200	200	200	200	200	200
R²	38.92%	42.29%	43.44%	9.11%	9.23%	9.40%
AR1 (p value)	0.01	< 0.01	0.02	< 0.01	< 0.01	< 0.01
AR2 (p value)	0.23	0.15	0.17	0.26	0.31	0.30

Editora Mackenzie; Universidade Presbiteriana Mackenzie Rua da Consolação, 896, Edifício Rev. Modesto Carvalhosa, Térreo - Coordenação da RAM, Consolação - São Paulo - SP - Brasil - cep 01302-907 - São Paulo - SP - Brazil
E-mail: revista.adm@mackenzie.br

Acompanhe os números deste periódico no seu leitor de RSS

[1] Correspondence concerning this article should be addressed to Adriana Bortoluzzo, Rua Quatá, 300, Vila Olímpia, São Paulo, São Paulo, Brasil, ZIP code 04546-042. Email: adrianab@insper.edu.br