Cash Savings from Net Equity Issues, Net Debt Issues, and Cash Flows : International Evidence

This study examines cash savings from net equity issues, net debt issues and internally generated cash flows. We observe that savings rates depend on the level of cash flows. For negative cash flows, savings rates are very low from cash flows and higher from net equity and net debt issues. For higher levels of cash flows, savings rates from cash flows increase substantially while savings rates from net debt issues and net equity issues fall. Using a sample of firms worldwide, we find that constrained firms have higher total savings rates than unconstrained companies. We also find that savings rates are positively related to investment opportunities, R&D intensity, multinational status, and whether firms are located in countries with a bank-oriented system and negatively related to whether firms pay dividends and whether companies reside in common law countries. The relationships we observe are significant for the subset of firms that are constrained, but are usually insignificant for unconstrained firms. Finally, our results suggest that when firms increase their savings, they usually use multiple channels as opposed to relying only on one channel