Do Managers Manage Cash Flows in Reaction on Analysts’ Cash Flow Forecasts?
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This paper investigates whether firms’ management in cash changes differ when firms are followed by analysts’ cash flow forecasts. There exist competing arguments with regard to the association between cash flow forecasts and management incentives. We first decompose cash changes into normal and abnormal cash changes following Chen and Shane (2014). Then, using the absolute value of abnormal cash changes as a proxy for cash flow management, we found that firms with analysts’ cash flow forecasts manage cash changes significantly less than firms without cash flow forecasts. Additionally we also found that financially constrained firms manage cash changes significantly more than unconstrained firms even when they are followed by cash flow forecasts. Overall, we suggest empirical evidence that analysts’ cash flow forecasts might play the monitoring role of constraining managers’ cash flow management. Whereas, financially constrained firms manage cash changes aggressively due to the incentives to enhance cash flows. This implies financial distress is a very strong determinant of corporate actions.
Abstract
This paper investigates whether firms’ management in cash changes differ when firms are followed by analysts’ cash flow forecasts. There exist competing arguments with regard to the association between cash flow forecasts and management incentives. We first decompose cash changes into normal and abnormal cash changes following Chen and Shane (2014). Then, using the absolute value of abnormal cash changes as a proxy for cash flow management, we found that firms with analysts’ cash flow forecasts manage cash changes significantly less than firms without cash flow forecasts. Additionally we also found that financially constrained firms manage cash changes significantly more than unconstrained firms even when they are followed by cash flow forecasts. Overall, we suggest empirical evidence that analysts’ cash flow forecasts might play the monitoring role of constraining managers’ cash flow management. Whereas, financially constrained firms manage cash changes aggressively due to the incentives to enhance cash flows. This implies financial distress is a very strong determinant of corporate actions.
참고문헌 (46)
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