Persistent Negative Cash Flows, Staged Financing, and the Stockpiling of Cash Balances

53 Pages Posted: 1 Jul 2020

See all articles by David J. Denis

David J. Denis

University of Pittsburgh

Stephen B. McKeon

University of Oregon - Department of Finance

Date Written: May 30, 2020

Abstract

Negative net cash flows have become substantially more pervasive, persistent, and greater in magnitude within US publicly-traded companies since 1971. Companies with negative cash flows, particularly those that also have high intangible capital, account for most of the rise in average cash balances in recent decades. These firms build cash balances through frequent equity offerings; however, the cash holdings are transitory as subsequent negative cash flows lead firms to rapidly burn through the cash. We conclude that funding needs and staged equity financing within negative cash flow firms are central features of the secular rise in average cash balances.

Keywords: Negative cash flow, cash balances, intangible capital, staged financing

JEL Classification: G32

Suggested Citation

Denis, David J. and McKeon, Stephen B., Persistent Negative Cash Flows, Staged Financing, and the Stockpiling of Cash Balances (May 30, 2020). Available at SSRN: https://ssrn.com/abstract=3622453 or http://dx.doi.org/10.2139/ssrn.3622453

David J. Denis (Contact Author)

University of Pittsburgh ( email )

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

Stephen B. McKeon

University of Oregon - Department of Finance ( email )

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

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