Persistent Operating Losses and Corporate Financial Policies

62 Pages Posted: 8 Dec 2016 Last revised: 30 Jun 2018

See all articles by David J. Denis

David J. Denis

University of Pittsburgh

Stephen B. McKeon

University of Oregon - Department of Finance

Date Written: June 24, 2018

Abstract

Coincident with a rise in intangible investment, operating losses have become substantially more prevalent, persistent, and greater in magnitude since 1970. Loss firms now make up over 30% of the Compustat universe and such losses continue for a median of four years. Firms with negative operating cash flows account for more than half of the rise in average cash balances over the sample period. Further, firms exhibiting operating losses are now the majority of equity issuers. These companies issue frequently, primarily through private placements, and use the funds raised in the issue to cover current and subsequent operating losses. We conclude that the immediate and expected ongoing liquidity needs of public firms with persistent operating losses have substantially altered corporate financial policies.

Keywords: Cash Flow, Cash, Equity Issuance

JEL Classification: D22, G30

Suggested Citation

Denis, David J. and McKeon, Stephen B., Persistent Operating Losses and Corporate Financial Policies (June 24, 2018). Available at SSRN: https://ssrn.com/abstract=2881584 or http://dx.doi.org/10.2139/ssrn.2881584

David J. Denis

University of Pittsburgh ( email )

Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)

Stephen B. McKeon (Contact Author)

University of Oregon - Department of Finance ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

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