Abstract

This paper examines firms listed on Korea Exchange in order to investigate the relationship between selling accounts receivables (factoring) and the value of cash holdings. Factoring accounts receivable incurs decreased net incomes and increased cash flows in advance of due. Previous studies report that holding high cash stocks can increase liquidity, but also cause severe agency problems between managers and stockholders. Therefore, it is necessary to examine cash holdings’ value of the firms which sell accounts receivables. Empirical results are as follows. Prior to the introduction of K－IFRS, the value of cash held by an entity with loss of disposal of accounts receivables was higher than that of an entity that did not, but was not the case when foreign currency receivables or related party receivables existed. Especially, for the exporters, the value of holding cash was highly valued if they raised funds through selling accounts receivables. Since the introduction of K－IFRS, it has not been found that the value of cash held by an entity with loss of disposal of accounts receivables differs from those that do not. A decrease in the value of related party trade receivables was found, but no increase in the value of cash held was found in export companies. For the total sample of listed firms in the Korean stock market, the cash flow of the firms used factoring accounts receivables may have positive relations with the firm value. However, the firms having related party receivables decreased the positive impact of factoring on the value of cash holdings. In total, factoring can be a useful means of financing, but caution is needed when there are accounts receivables with special interested parties.

Keywords

• factoring
• account receivables
• value of cash holdings
• special interested parties
• K－IFRS

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