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Building financial flexibility in preparation for Brexit: the case of Irish medium sized enterprises

Andrea McNamara
Andrea McNamara
, 
Thomas O’Connor
Thomas O’Connor
 und 
Sheila O’Donohoe
Sheila O’Donohoe
   | 16. Aug. 2023
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Article Category: Research Article
Online veröffentlicht: 16. Aug. 2023
Seitenbereich: 33 - 52
DOI: https://doi.org/10.2478/ijm-2022-0007
Schlüsselwörter
© 2022 Andrea McNamara et al., published by Sciendo
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Figure 1

Working capital
Working capital

Figure 2

Financial leverage and cash
Financial leverage and cash

Figure 3

Dividend payout and capital expenditures
Dividend payout and capital expenditures

Working capital regressions

  Dependent variable is
Working capital Inventory days Receivables days Payables days Cash cycle
Post-Referendum 0.006(0.57) 3.844***(2.72) 4.611**(2.43) 4.827***(2.84) 3.860(1.64)
Log firm size 0.114(0.97) -9.461(0.76) -17.170(0.97) -12.648(0.77) -13.313(0.55)
Firm growth 0.032(0.68) -8.647**(2.22) -13.271**(2.54) -14.900***(3.58) -7.927(1.21)
Profitability 0.161**(2.23) 7.162(1.01) 16.037(1.29) 5.311(0.65) 17.638(1.39)
Profit volatility 0.190(1.46) 2.272(0.18) 4.781(0.29) -10.945(0.97) 18.331(0.86)
Log firm age -0.004(0.06) -26.232(1.56) -42.590***(2.98) -35.501**(1.99) -33.884(1.62)
Total liabilities -0.370***(4.79) -9.209(1.27) 3.432(0.32) -4.699(0.62) 0.196(0.02)
Financing constraints 0.096(0.48) -23.075(1.01) -60.299*(1.87) -34.462(1.07) -48.702(1.08)
Log of GDP per capita 0.005(0.08) 17.307**(2.51) 12.784(1.14) 16.191(1.51) 14.266(0.98)
Observations 996 996 996 996 996
R-squared (overall) 0.185 0.027 0.050 0.039 0.098
R-squared (within) 0.146 0.101 0.128 0.145 0.079
Predicted amounts in the pre- and post-Referendum periods
Pre-Referendum 0.26 23.22 34.12 25.09 32.15
Post-Referendum 0.26 27.07*** 38.73** 29.92*** 36.01

Regressions by pre-Referendum firm size

  Dependent variable is
Dividend policy Capital structure Cash Investment
Div-payer Div-sales TL/TA FD/CAP Debt maturity
Post-Referendum -0.008(0.16) 0.012(1.20) -0.005(0.38) -0.019(1.40) -0.027(1.34) 0.002(0.19) 0.006(0.80)
Post-Referendum * size 0.021(0.31) 0.003(0.29) -0.013(0.82) 0.017(0.89) 0.012(0.44) 0.007(0.48) -0.001(0.10)
Observations 990 906 1,026 1,367 1,367 1,306 1,018
Controls Included Included Included Included Included Included Included
R-squared (overall) 0.008 0.035 0.010 0.035 0.104 0.000 0.023
R-squared (within) 0.021 0.121 0.100 0.058 0.048 0.068 0.103
  Dependent variable is
Working capital Inventory days Receivables days Payables days Cash cycle
Post-Referendum -0.004(0.26) 9.331***(4.00) 10.047***(3.04) 12.555***(4.91) 6.712*(1.87)
Post-Referendum * size 0.016(0.90) -8.806**(2.47) -9.610**(2.51) -12.873***(4.57) -4.974(1.03)
Observations 996 996 996 996 996
Controls Included Included Included Included Included
R-squared (overall) 0.224 0.010 0.060 0.001 0.101
R-squared (within) 0.153 0.122 0.148 0.195 0.083

Variable description

Variable Description Mean p25 Median p75 p95 Sthev
Financial flexibility variables
Dividends-sales Dividends paid to common shareholders to sales 0.03 0.00 0.00 0.01 0.15 0.08
Dividend payer Equals 1 if the firm pays a dividend in year t 0.48 0.00 0.00 1.00 1.00 0.50
Working capital (Current assets - current liabilities) to book assets 0.29 0.10 0.31 0.47 0.70 0.26
Inventory days (Inventory/net sales) * 365 21.58 0.00 7.21 34.76 84.84 29.76
Receivables days (Accounts receivable/net sales) * 365 32.30 0.00 10.51 59.59 99.31 43.38
Payables days (Accounts payable/net sales) * 365 23.58 0.00 16.02 36.15 71.62 33.72
Cash conversion cycle Days in receivables + days in inventory - days in payables 31.25 0.00 15.31 60.65 113.98 47.81
Cash holdings Cash to assets 0.19 0.06 0.15 0.27 0.55 0.17
Total liabilities Total liabilities to book assets 0.45 0.26 0.44 0.63 0.83 0.23
Financial debt to capital Financial debt to sum of financial debt and equity 0.21 0.01 0.12 0.34 0.71 0.24
Debt maturity Long-term financial debt to total financial debt 0.28 0.00 0.02 0.62 0.92 0.35
Investment Capital expenditures to book assets 0.04 0.01 0.02 0.06 0.16 0.07
Control variables
Asset tangibility Fixed to total assets 0.36 0.13 0.30 0.53 0.89 0.27
Firm age Year less establishment year 31.40 18.00 28.00 40.00 65.00 19.82
Firm size Log of book assets in thousands of euro 2.50 1.97 2.51 3.06 4.02 0.83
Profitability Earnings before interest and taxation to book assets 0.09 0.03 0.07 0.13 0.33 0.13
Profit volatility Standard deviation of ROA over the previous three years 0.06 0.01 0.03 0.06 0.21 0.08
Sales growth One-year growth in sales 0.08 (0.01) 0.06 0.15 0.44 0.21
Asset growth One-year growth in book assets (0.06) (0.13) (0.05) 0.01 0.22 0.19
Financing constraints HP index equals (-0.737 * size + 0.043 * size2 -0.040 * age) (2.75) (3.31) (2.75) (2.15) (1.50) 0.82
△ Working capital Change in working capital to lagged book assets 0.32 0.10 0.32 0.51 0.79 0.29
Foreign sales The ratio of foreign to total sales 0.07 0.00 0.00 0.00 0.71 0.22
GDP per capita Natural log of GDP per capita in constant euro prices 10.92 10.72 10.96 11.02 11.09 0.15
Referendum dummy Equals 1 in years 2017, 2018, and 2019, 0 otherwise nm nm nm nm nm nm
Industry dummies Industry dummies based on US four-digit primary SIC nm nm nm nm nm nm
Number of firms in each industry
Agriculture, Forestry & Fishing Mining Construction Manufacturing Transportation, Communications, Electric, Gas & Sanitary
10 7 129 316 106
Wholesale trade Retail trade Services Public administration Other
142 193 441 3 26

Regressions by pre-Referendum cash levels

  Dependent variable is
Dividend policy Capital structure Cash Investment
Div-payer Div-sales TL/TA FD/CAP Debt maturity
Post-Referendum -0.035(0.75) 0.012(1.62) -0.025**(2.43) -0.033**(2.26) -0.055***(2.78) 0.028***(3.21) -0.002(0.35)
Post-Referendum * cash 0.099(1.44) 0.003(0.23) 0.036**(2.27) 0.045**(2.38) 0.073***(2.64) -0.056***(4.02) 0.016*(1.95)
Observations 990 906 1,026 1,367 1,367 1,306 1,018
Controls Included Included Included Included Included Included Included
R-squared (overall) 0.010 0.035 0.010 0.018 0.065 0.004 0.022
R-squared (within) 0.025 0.121 0.114 0.069 0.059 0.104 0.109
  Dependent variable is
Working capital Inventory days Receivables days Payables days Cash cycle
Post-Referendum 0.017(1.29) 3.343*(1.80) 0.823(0.35) 4.073**(2.17) 0.462(0.17)
Post-Referendum * cash -0.029*(1.69) 1.661(0.43) 8.698**(2.25) 1.856(0.59) 8.151(1.55)
Observations 996 996 996 996 996
Controls Included Included Included Included Included
R-squared (overall) 0.196 0.022 0.060 0.040 0.099
R-squared (within) 0.158 0.101 0.145 0.146 0.089

Dividend payout, capital structure, cash, and investment regressions

  Dependent variable is
Dividend policy Leverage policy Cash Investment
Div-payer Div-sales TL/TA FD/CAP Debt maturity
Post-Referendum 0.002(0.06) 0.013*(1.72) -0.010(1.27) -0.011(1.20) -0.020(1.42) -0.000(0.06) 0.010(1.57)
Log firm size -0.130(1.15) -0.020(1.29) -0.004(0.14) 0.048(1.34) 0.079*(1.87) 0.056(0.82) -0.005(0.30)
Firm growth 0.276**(2.54) 0.113***(3.80) -0.055*(1.71) -0.093**(2.29) -0.180***(3.89) 0.039(1.49) -0.093***(3.52)
Profitability -0.260(1.30) -0.047(1.19) -0.203***(3.92) -0.172***(2.83) -0.088(1.20) 0.082(1.58) -0.073*(1.74)
Profit volatility -0.011(0.04) -0.015(0.16) 0.061(0.81)
Cash -0.007(0.03) 0.038(1.10) 0.147***(3.81)
Log firm age -0.263(0.82) -0.045(1.36) 0.017(0.45) 0.004(0.10) -0.096(1.49) 0.099*(1.74) -0.098(1.55)
Total liabilities -0.611**(2.39) -0.185***(4.29)
Tangibility 0.036(0.65) 0.095(1.61) 0.202**(1.96)
Working capital 0.158***(4.22)
Dividend payout -0.046(1.14)
Financing constraints 0.154(1.32)
△ Working capital 0.158***(4.22) 0.059**(2.48)
Log of GDP per capita -0.019(0.11) -0.022(1.06) -0.056**(1.96) -0.055*(1.68) -0.059(1.02) 0.003(0.08) 0.025(0.97)
Observations 990 906 1,026 1,367 1,367 1,306 1,018
R-squared (overall) 0.004 0.039 0.005 0.034 0.087 0.155 0.010
R-squared (within) 0.027 0.136 0.088 0.052 0.049 0.065 0.146
Predicted amounts in the pre- and post-Referendum periods
Pre-Referendum 0.051 0.015 0.45 0.22 0.30 0.186 0.033
Post-Referendum 0.051 0.028* 0.44 0.21 0.28 0.186 0.043

Regressions by pre-Referendum leverage levels

  Dependent variable is
Dividend policy Capital structure Cash Investment
Div-payer Div-sales TL/TA FD/CAP Debt maturity
Post-Referendum 0.037(0.67) 0.013(1.20) 0.018*(1.69) 0.027***(2.67) -0.005(0.27) -0.011(0.87) 0.007(0.91)
Post-Referendum * leverage -0.056(0.81) 0.000(0.04) -0.048***(3.35) -0.075***(3.96) -0.031(1.11) 0.029**(2.02) -0.002(0.19)
Observations 990 906 1,026 1,367 1,367 1,306 1,018
Controls Included Included Included Included Included Included Included
R-squared (overall) 0.010 0.034 0.004 0.000 0.082 0.000 0.023
R-squared (within) 0.022 0.120 0.124 0.089 0.049 0.077 0.103
  Dependent variable is
Working capital Inventory days Receivables days Payables days Cash cycle
Post-Referendum -0.020(1.25) 7.835***(2.81) 6.625**(2.08) 4.323(1.51) 10.076***(2.51)
Post-Referendum * leverage 0.042***(2.61) -6.385*(1.72) -4.032(1.04) 0.607(0.19) -10.558**(2.14)
Observations 996 996 996 996 996
Controls Included Included Included Included Included
R-squared (overall) 0.194 0.019 0.058 0.048 0.110
R-squared (within) 0.164 0.111 0.134 0.146 0.095
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