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

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

Table 2:

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	Cash	Investment
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

1 This table presents coefficient estimates from a series of firm fixed effects regressions for a sample of medium sized enterprises in Ireland. The sample period is 2014-2019. The dependent variable is dividend payer (Div-payer), dividends-to-sales (Div-sales), total liabilities to book assets (TL/ TA), financial debt to capital (FD/CAP), debt maturity, cash, and investment, as indicated. Post-Referendum is a dummy variable which equals 1 in years 2017, 2018, and 2019. All other variables are defined in Table 1. The bottom rows present predicted amounts of each dependent variable for the average firm in the pre- and post-Referendum periods.

1 ***, **, and *, denotes statistical significance at the 1,5, and 10% levels, respectively.

Table 3:

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

1 This table presents coefficient estimates from a series of firm fixed effects regressions for a sample of medium sized enterprises in Ireland. The sample period is 2014-2019. The dependent variable is working capital, inventory days, receivables days, payables days, and cash conversion cycle, as indicated. Post-Referendum is a dummy variable which equals 1 in years 2017, 2018, and 2019. All other variables are defined in Table 1. The bottom rows present predicted amounts of each dependent variable for the average firm in the pre- and post-Referendum periods.

1 ***, **, and *, denotes statistical significance at the 1,5, and 10% levels, respectively.

Dividend payout and capital expenditures

Table 4:

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	Cash	Investment
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

1 This table presents coefficient estimates from a series of firm fixed effects regressions for a sample of medium sized enterprises in Ireland. The sample period is 2014-2019. The dependent variable is dividend payer (Div-payer), dividends-to-sales (Div-sales), total liabilities to book assets (TL/TA), financial debt to capital (FD/CAP), debt maturity, cash, and investment, working capital, inventory days, receivables days, payables days, and cash conversion cycle, as indicated. Post-Referendum is a dummy variable which equals 1 in years 2017, 2018, and 2019. Cash refers to firms with aboveaverage pre-Referendum levels of cash. A full set of control variables are included but not reported.

1 ***, **, and *, denotes statistical significance at the 1, 5, and 10% levels, respectively.

Table 5:

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	Cash	Investment
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

1 This table presents coefficient estimates from a series of firm fixed effects regressions for a sample of medium sized enterprises in Ireland. The sample period is 2014-2019. The dependent variable is dividend payer (Div-payer), dividends-to-sales (Div-sales), total liabilities to book assets (TL/ TA), financial debt to capital (FD/CAP), debt maturity, cash, and investment, working capital, inventory days, receivables days, payables days, and cash conversion cycle, as indicated. Post-Referendum is a dummy variable which equals 1 in years 2017, 2018, and 2019. Leverage refers to firms with above-average pre-Referendum leverage (FD/Capital). A full set of control variables are included but not reported.

1 ***, **, and *, denotes statistical significance at the 1, 5, and 10% levels, respectively.

Table 6:

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	Cash	Investment
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

1 This table presents coefficient estimates from a series of firm fixed effects regressions for a sample of medium sized enterprises in Ireland. The sample period is 2014-2019. The dependent variable is dividend payer (Div-payer), dividends-to-sales (Div-sales), total liabilities to book assets (TL/TA), financial debt to capital (FD/CAP), debt maturity, cash, and investment, working capital, inventory days, receivables days, payables days, and cash conversion cycle, as indicated. Post-Referendum is a dummy variable which equals 1 in years 2017, 2018, and 2019. Size refers to firms with aboveaverage pre-Referendum firm size. A full set of control variables are included but not reported.

1 ***, **, and *, denotes statistical significance at the 1, 5, and 10% levels, respectively.

References

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Articles in this issue

DOI: https://doi.org/10.2478/ijm-2022-0007 | Journal eISSN: 2451-2834 (formerly 1649-248X) | Journal ISSN: 1649-248X

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Language: English

Page range: 33 - 52

Published on: Aug 16, 2023

Published by: Irish Academy of Management

In partnership with: Paradigm Publishing Services

Publication frequency: 3 issues per year

Keywords:

Brexit,

Irish medium sized enterprises,

financial flexibility

Related subjects:

Business and economics,

Business management,

Marketing, sales, customer relations,

Management, organization, corporate governance,

Entrepreneurship,

Human resources, labor practice, job and career

© 2023 Andrea McNamara, Thomas O’Connor, Sheila O’Donohoe, published by Irish Academy of Management
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Volume 42 (2023): Issue 1 (July 2023)

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

Figures & Tables

Table 1:

Table 2:

Table 3:

Figure 1.

Figure 2.

Figure 3.

Table 4:

Table 5:

Table 6:

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