Cash flow statements and firm value: Evidence from Taiwan

• Published in: The Quarterly review of economics and finance 2019-02, Vol.71, p.280-290
• Main Authors: Ni, Yensen, Huang, Paoyu, Chiang, Pinhui, Liao, Yulu
• Format: Article
• Language: English
• Subjects: Cash flow; Cash flow statement; Corporate governance; Firm value
• ISSN: 1062-9769; 1878-4259
• DOI: 10.1016/j.qref.2018.09.004

•We explore whether firm value would be affected by various cash flows from operating, investing, and financing activities.•We show that cash inflows from financing activities and cash outflows to investing activities would enhance firm value.•We reveal that cash inflows from operating activities might not enhance firm value.•We infer that cash inflows from operating increased result from sales increased due to lower profit margin.•We deduce that cash outflows from operating decreased result from purchases shrunk owing to market shares declined. By studying cash flows from operating, investing, and financing activities, we explore the effect of these various cash flows on firm value by employing censored panel data models due to concerning panel data employed and characteristics of dependent variables. Results imply that firms raising funds for capital budgeting projects can enhance their firm value, resulting in cash inflows from financing activities and cash outflows to investing activities consistent with our cognitions. However, results reveal that cash inflows from operating activities may not be regarded as a positive signal different from the relevant studies. We infer that the market is increasingly competitive for Taiwanese enterprises due to more and more competitors from South Korea and China; in addition, we argue that firm value might not be enhanced if cash inflows from operating resulting from sales increased due to lower profit margin or purchases shrunk owing to market share declined.