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

Abstract

The purpose of this paper is to examine the building of financial flexibility by Irish medium sized enterprises in the run-up to Brexit. We analyze changes in firms’ dividends, leverage, cash, investment levels and working capital in the period surrounding the passing of the Brexit referendum to test for stockpiling of financial slack. Whilst we find no evidence of financial flexibility building overall, there is some evidence to suggest that firms incentivised to build such flexibility do so. Cash poor firms appear to build financial slack by way of reducing leverage and increasing their cash reserves. In contrast, cash rich firms increase their capital expenditure using internal and external funds. Interestingly all firms irrespective of their size or financial strength increase their working capital investment and in particular build their inventory levels post the Brexit referendum. Our evidence suggests Irish medium sized enterprises are optimistic of the opportunities post Brexit.