Cash Profitability in Corporate Liquidity Management with Cross-sectional Heterogeneity

Managerial Summary:
1️⃣ Statistical Modelling: Based on causal analysis, Thai firms accumulated 15% of cash assets due to cash profitability, increasing 6%-12% goodness of fit (RStudio). The data source is accounting and financial data from 300 firms listed in Stock Exchange of Thailand over the past 20 years queried by Bloomberg Terminal, and cleaned using Python.
2️⃣ Machine Learning: Developed Kalman Filter algorithms (Python) computational program on time-series data to estimate firm operational risk factors in 29 firm groups, marginally increasing 1-2% goodness of fit in modeling corporate liquidity management.
3️⃣ Presentation: Illustrated the connection of the research outcomes to general business context in 15 minutes to a panel of 4 business management experts.
Technical Summary (Abstract):
Liquidity management is a critical mission for firm managers such as CFOs to ensure that the firm has enough financial resources to support firm investments and to satisfy upcoming debt obligations. This study estimates the effect of cash profitability on liquidity levels of firms listed in Stock Exchange of Thailand (SET) from year 2000 to 2022 by using the regression framework to address identification challenges. In response to higher cash profitability, firms accumulate more cash assets, save lower amounts of receivables, and decrease the hoarding of inventories. Aside from overall effects, this study considers cross-sectional heterogeneity in cash flow risk using Generalized Kalman Filter, an unsupervised algorithm which takes the correlation between transitory and permanent shocks into account. Although there are large variations in cash flow risk parameters among Thai listed firms, the practice of liquidity management is not significantly different across firms with different cash flow risk heterogeneity. The investigation of two possible explanations underlying the regression result supports pecking order theory: firms accumulate cash and expedite cash collection in the period of higher cash profitability in preparation for investments when agency costs between firm managers and outside investors are relatively low. The results from this study permit a deeper understanding of liquidity ratios in the context of Thai listed firms, which is useful for managers and policymakers.

Recommended citation: Visantavarakul, K. (2024). "Cash Profitability in Corporate Liquidity Management with Cross-sectional Heterogeneity." [Master Thesis, Peking University HSBC Business School]. https://drm.lib.pku.edu.cn/pdfindex1.jsp?fid=431813afd1f97101532a4a1f2d9a9b10
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