TY - JOUR
T1 - Listing, delisting, and financial norms
T2 - a quantile decomposition of firm balance sheets
AU - Davis, Leila E.
AU - de Souza, Joao Paulo A.
AU - Hernandez, Gonzalo
N1 - Publisher Copyright:
© 2023, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.
PY - 2023/9
Y1 - 2023/9
N2 - 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.
AB - 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.
KW - Cash holdings
KW - Financial fragility
KW - Financial norms
KW - Leverage
KW - Minsky
UR - http://www.scopus.com/inward/record.url?scp=85160635547&partnerID=8YFLogxK
U2 - 10.1007/s00191-023-00815-9
DO - 10.1007/s00191-023-00815-9
M3 - Article
AN - SCOPUS:85160635547
SN - 0936-9937
VL - 33
SP - 1259
EP - 1302
JO - Journal of Evolutionary Economics
JF - Journal of Evolutionary Economics
IS - 4
ER -