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Listing, delisting, and financial norms: a quantile decomposition of firm balance sheets

Author

Listed:
  • Leila E. Davis

    (University of Massachusetts Boston)

  • Joao Paulo A. de Souza

    (University of Massachusetts Boston)

  • Gonzalo Hernandez

    (Pontificia Universidad Javeriana)

Abstract

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.

Suggested Citation

  • Leila E. Davis & Joao Paulo A. de Souza & Gonzalo Hernandez, 2023. "Listing, delisting, and financial norms: a quantile decomposition of firm balance sheets," Journal of Evolutionary Economics, Springer, vol. 33(4), pages 1259-1302, September.
    • Handle: RePEc:spr:joevec:v:33:y:2023:i:4:d:10.1007_s00191-023-00815-9
    DOI: 10.1007/s00191-023-00815-9
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    More about this item

    Keywords

    Cash holdings; Leverage; Financial norms; Minsky; Financial fragility;
    All these keywords.

    JEL classification:

    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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