THE BALANCED CAPITAL STRUCTURE

At leading companies, financial executives are becoming business partners rather than just scorekeepers. In this environment, capital structure can be a source of competitive advantage, and financial strategy issues are critical: Should your company buy back shares or issue stock, grow internally or join the M & A boom, issue fixed-rate debt or stay floating? These decisions must be addressed one company at a time, balancing the competing priorities of cost, risk, and flexibility. The most important issue, target leverage, depends on the company's desired risk profile, growth plans, and debt cost considerations. But market conditions are also very important: Can the company access the equity market? How will a repurchase announcement be interpreted? Market conditions also affect the raising of debt capital. Rather than maintaining a constant mix of fixed- to floating-rate debt, companies should shift the mix during high- or low-yield environments. Many other financing issues will effectively be decided by market convention. For example, meeting a company's needs with respect to seniority, maturity structure, call flexibility, and financial covenants is often accomplished simply by choosing the market that most closely matches the firm's cost and risk preferences.     

Real Investment Implications of Employee Stock Option Exercises

This paper examines a real cost of awarding employee stock options. Based on the observation that managers are extremely concerned about earnings-per-share dilution in equity related compensation, we predict and find that firms experiencing significant employee stock option (ESO) exercises shift resources away from real investments towards the repurchase of their own stocks. We further find weak evidence of a decline in subsequent firm performance (as measured by return on assets) for several years following the cut in discretionary investments as a result of stock option exercises, though this result is sensitive to the metric used to measure performance. Collectively, our findings indicate that ESO exercises potentially impose a real cost on the firm in terms of foregone investment opportunities.     

Managing Earnings with Intercorporate Investments

Abstract:  We explore to what extent firms deliberately manage their financial reports by exploiting the flexibility of generally accepted accounting principles. Using a sample of Oslo Stock Exchange-listed firms with 20–50% equity holdings in other firms, we find that firms with high financial leverage tend to maximize reported earnings from these investments through their choice between the cost method and the equity method, possibly in an attempt to reduce debt renegotiation costs or to avoid regulatory attention. In contrast, managers do not systematically bias reported earnings to extract private benefits or to signal revised expectations about future cash flows. Firms use different earnings management tools in a consistent way, as the earnings effect of the cost/equity choice is not offset by discretionary accruals.     

Accounting rules,equity valuation,and growth options

In a model with irreversible capacity investments, we show that financial statements prepared under replacement cost accounting provide investors with sufficient information for equity valuation purposes. Under alternative accounting rules, including historical cost and value in use accounting, investors will generally not be able to value precisely a firm’s growth options and therefore its equity. For these accounting rules, we describe the range of valuations that is consistent with the firm’s financial statements. We further show that replacement cost accounting preserves all value-relevant information if the firm’s investments are reversible. However, the directional relation between the value of the firm’s equity and the replacement cost of its assets is different from that in the setting with irreversible investments.     

An empirical analysis of the interfirm equity investment process

This paper measures the effects on stock proces of corporate investments in 5% or more of another company's equity securities. Such investments initiate a process that may end with a takeover, targeted repurchase, takeover by a third party, or sale of the shares. The total valuation effect of the investment for acquiring and target firms includes returns at disclosure of the investment position, the outcome announcement, and related intervening events. For example, the positive return for target firms at initial disclosure of the investment more than offsets the negative return at a targeted repurchase.     

Financial Flexibility,Investment Ability,and Firm Value: Evidence from Firms with Spare Debt Capacity

We document, for the first time, that a conservative leverage policy directed at maintaining financial flexibility can enhance investment ability. Our analysis reveals that following a period of low leverage, firms make larger capital expenditures and increase abnormal investment. We find that these new investments are financed through new issues of debt. The impact of financial flexibility is both statistically significant and economically sizable. Further, long-run performance tests reveal that financially flexible firms not only invest more but also invest better. Our results are consistent with the view that financial flexibility in the form of untapped reserves of borrowing power is a crucial missing link in capital structure theory.     

From Participation To Repurchase: Low Income Households And Micro-insurance

The article asks what drives the time to repurchase for life and accident insurance contracts in low income households. We use data on customers of a financial services provider from three states in India and find that the probability of repurchase is highest in the first 2 months after the contract expires, and steadily declines after. This suggests a window of opportunity for financial firms and governments to target customers to ensure continuous insurance purchase. Nonmembership of microfinance groups and poor rainfall in the month of expiry affect the time to repurchase adversely. Customers who take longer to repurchase tend to increase the amount of insurance cover.     

THE DIFFERENTIAL INFORMATION CONVEYED BY SHARE REPURCHASE TENDER OFFERS AND DIVIDEND INCREASES

We identify the difference in the private information conveyed by the announcements of a share repurchase tender offer and of a regular dividend increase. We find that, after controlling for timing, industry, size of cash distribution, and other firm-specific characteristics, a share repurchase tender offer causes a much larger stock price response than a regular dividend increase. The results suggest that the two cash distribution mechanisms convey differential information. Further examination of the differential information indicates that (1) the upward revision in financial analysts' earnings forecasts following a share repurchase is, on average, greater than that following a regular dividend increase, and (2) a repurchase announcement is followed by a permanent decline in the firms' systematic risk while a dividend-increase announcement is not.     

The Responsiveness of Corporate Investments to Changes in Corporate Income Taxation During the Financial Crisis: Empirical Evidence from Slovenian Firms

I examine the responsiveness of corporate investments to changes in corporate income taxation during the financial crisis. When investigating tax effects in financially constrained firms, the model of investment demand needs to be extended to include an additional channel through which taxes could affect investments. I model the tax effects via two transmission channels, the traditional user cost of capital channel and the cash flow channel, which is crucial for financially constrained firms. The empirical results show that corporate investments in financially constrained firms do not respond to changes in corporate income taxation through the user cost of capital channel, but there is strong evidence of the effect that materializes through the cash flow channel.     

Open-Market Stock Repurchase and Stock Price Behavior When Management Values Real Investment

This paper provides a simple explanation of open‐market stock repurchases and the stock price behavior surrounding them. There is ex ante asymmetry of information with regard to the private benefits that corporate managers can attain from real investments. In our model, open‐market repurchase announcements reveal information about the managers' private benefits when real investment opportunities are unprofitable in terms of firm values. This study differs from previous studies in that we show that announcements of open‐market repurchase programs can be believable without the restriction that the announcements are commitments. Empirically, the model simultaneously predicts that a stock price will drop prior to an open‐market repurchase announcement and will rise in response to the announcement. These predictions are consistent with stylized facts.     

母公司个别财务报表中对子公司投资的会计处理方法之辨:成本法还是权益法?

由于我国现行《长期股权投资》会计准则规定在母公司个别财务报表中采用成本法核算对子公司的长期股权投资(以下简称为对子公司投资),这割裂了母公司个别财务报表与合并财务报表的本原逻辑关联,削弱了两者间的互补性,且导致母公司股东基于母公司个别财务报表来厘定分红权利虽然符合《公司法》却很不合理,而基于合并财务报表来厘定分红权利虽更为合理但和《公司法》存在明显冲突.我们对该问题进行了深入分析,论证了在母公司个别财务报表之中采用权益法来核算其对子公司投资的逻辑合理性和现实必要性,并建议修订我国现行《长期股权投资》会计准则,在母公司个别财务报表之中由成本法改为采用权益法来核算其对子公司投资.     

Accelerated share repurchases

Accelerated share repurchases (ASRs) are credible commitments by firms to repurchase shares immediately. Including an ASR in a repurchase program reduces the flexibility that firms have to alter an announced program in response to subsequent changes in the price and liquidity of its shares, unexpected shocks to cash flow and/or investment, etc. Thus, we investigate whether firms' decisions to include ASRs in their repurchase programs are associated with factors expected to influence the costs of lost flexibility and the benefits of enhanced credibility and immediacy. We find robust evidence consistent with the costs of lost flexibility and the benefits of credibility and immediacy being important determinants of ASR adoption. Additionally, we find that ASR announcements are associated with positive average abnormal stock returns.     

影子银行与金融危机

本文认为,此次全球金融危机的根源在于回购市场挤提引起的银行恐慌。机构投资者是回购市场的需求者,他们向影子银行"存款",影子银行则以资产抵押支持证券保证"存款"的安全。当证券化资产的折价率大幅提高时,就出现了回购市场挤提,引起银行恐慌,从而导致了此次全球金融危机。     

Dividends versus Share Repurchases Evidence from Canada: 1985–2003

This paper provides out-of-sample evidence on the payout policy in Canada during the 1985–2003 period. First, we show that the proportion of nonfinancial firms paying dividends has decreased, while the proportion initiating repurchase programs has increased. We also show that Canadian firms paying dividends and repurchasing shares are extremely concentrated. Second, we focus on the factors that could affect the choice between repurchases and dividends. We find that dividends and repurchases are used by different types of firms. While we do not confirm the financial flexibility hypothesis, our results are consistent with the substitution hypothesis after controlling for selection bias and endogeneity.     

Stock Repurchase and Agency Problems: New Evidence in Taiwan's Stock Market

This paper explores stock repurchase and agency issues in an emerging market with special regulations. Using match samples, agency-related variables are investigated for pre- and postannouncement periods. Our empirical evidence demonstrates that stock repurchase is related to agency cost mitigation. Agency problems are also significantly related to the preannouncement undervaluation of stock repurchase, after controlling for the effects of growth opportunity and asymmetric information. Finally, a company with a higher ratio of expected repurchase or higher agency costs normally enjoys better market response upon announcement.     

Assessing the interaction effect of cost control systems and information technology integration on manufacturing plant financial performance

The interface between management control and information technology is an under-developed research area with a knowledge gap concerning its implications for financial performance. This study contributes to bridging this gap by investigating the interaction effect of cost control systems and information technology integration on manufacturing plant financial performance. We surveyed a sample of 518 managers of U.S. manufacturing plants, approximately evenly distributed between those using activity-based costing and volume-based costing. Using hierarchical regression analyses, results indicate that while information technology integration and cost control systems do not provide significant independent effects on plant financial performance, they do interact to positively impact manufacturing plant financial performance. Thus, our findings suggest that manufacturing plants will reap the greatest financial performance benefits from investments in activity-based cost control systems when combined with information technology integration.     

The Information Content of Share Repurchase Programs

Contrary to the implications of many payout theories, we find that announcements of open‐market share repurchase programs are not followed by an increase in operating performance. However, we find that repurchasing firms experience a significant reduction in systematic risk and cost of capital relative to non‐repurchasing firms. Further, consistent with the free cash‐flow hypothesis, we find that the market reaction to share repurchase announcements is more positive among those firms that are more likely to overinvest. Finally, we find evidence to indicate that investors underreact to repurchase announcements because they initially underestimate the decline in cost of capital.     

The Wealth and Information Effects of Insurers' Open Market Stock Repurchase Announcements

This article examines the use of an increasingly popular method of cash disbursement in the insurance industry: stock repurchase programs. Using a sample of stock repurchase announcements between 1981 and 1997, we examine the motivation for stock repurchase, estimate the market reaction to the repurchase announcement, and evaluate the magnitude of the reaction as it relates to particular insurance industry and firm characteristics. We examine the abnormal returns around the announcement day and find a significant positive wealth effect associated with repurchase announcements—a result that is consistent with that of other studies of both nonfinancial and financial firms. However, we suspect that the nature of the insurance product and the highly regulated status of the insurance industry might serve to mitigate the magnitude of an announcement effect. In fact, we find that the effect for all insurers is smaller than that obtained in samples of industrial firms. Finally, we examine the relationships between the magnitude of the announcement effect and various firm characteristics and test the significance of information signaling and Jensen's free cash flow theories in the insurance setting.     

股份回购与国有股减持

股份回购是西方发达国家成熟资本市场中常用一种的运作方法，在我国则是一种金融创新。我国股份回购有着特殊的使命-减持国有股。本文着重分析股份回购在国有股减持中的重要作用、运用条件、运用方式以及运用效果的实证研究。     

Flexibility in share repurchases: Evidence from UK

Although firms cite flexibility as important when repurchasing shares, we know little about how or why firms vary repurchases. We use an extensive sample of daily repurchase transactions from the United Kingdom to investigate how the number of repurchase days and volumes of shares repurchased change based on several known motivations. We find that stock price changes, liquidity, leverage, takeover activity and earnings per share targets impact share repurchasing patterns. Further, we compare actual repurchases to alternative share accumulation strategies and find that firms utilize flexibility without paying higher costs.