Hedging,Financing and Investment Decisions: A Simultaneous Equations Framework

We empirically investigate the interactions among hedging, financing, and investment decisions. We argue that the way in which hedging affects a firm's financing and investing decisions differs for firms with different growth opportunities. We find that high growth firms increase their investment, but not leverage, by hedging. However, we also find that firms with few investment opportunities use derivatives to increase their leverage.     

Interactions of Corporate Financing and Investment Decisions: A Dynamic Framework

This article analyzes the interaction between a firm's dynamic investment, operating, and financing decisions in a model with operating adjustment and recapitalization costs. Using numerical analysis, we solve the model for cases that highlight interaction effects. We find that higher production flexibility (due to lower costs of shutting down and reopening a production facility) enhances the firm's debt capacity, thereby increasing the net tax shield value of debt financing. While higher financial flexibility (resulting from lower recapitalization costs) has a similar effect, production flexibility and financial flexibility are, to some extent, substitutes. We find that the impact of debt financing on the firm's investment and operating decisions is economically insignificant.     

Financing constraints and internal capital markets: Evidence from Korean `chaebols'

We compare the investment–cash flow sensitivity of Korean chaebols (conglomerates) and non-chaebol firms. We show that investment–cash flow sensitivity is low and insignificant for chaebol firms but is high and significant for non-chaebol firms. On the other hand, a chaebol firm's investment is significantly related to the growth opportunities but that of a non-chaebol firm is not. A chaebol firm's investment is significantly affected by the cash flow of other firms within the same chaebol even though they are independent legal entities. With these findings, we argue that there is an internal capital market in a chaebol and the internal capital market reduces the financing constraints of the chaebol. However, the operation of the internal capital market does not improve the efficiency of allocation of scarce funds in the Korean economy since we find that chaebols invest more than non-chaebol firms despite their relatively poor growth opportunities.     

Urban Vibrancy and Corporate Growth

We find that a firm's investment is highly sensitive to the investments of other firms headquartered nearby, even those in very different industries. A firm's investment also responds to fluctuations in the cash flows and stock prices (q) of local firms outside its sector. These patterns do not appear to reflect exogenous area shocks such as local shocks to labor or real estate values, but rather suggest that local agglomeration economies are important determinants of firm investment and growth.     

Real Estate Risk,Corporate Investment and Financing Choice

This paper empirically examines how real estate risk impacts corporate investment and financing decisions. Using a panel of United States firms from 1985 to 2013, we document that real estate risk is negatively associated with firms’ long-term investments and long-term external financing in equity and debt. The results are robust to different risk measurements and in particular salient during the financial crisis period when the endogeneity between risk and investment is less of a concern. The effect on firm leverage, however, depends on risk measures. Overall, in contrast to previously documented positive effects of the real estate value, real estate risk exposure exhibits mostly the opposite effects on investment, financing and capital structure. This difference is consistent with option value determinants. Findings in this paper shed new lights on the impact of real estate holding on corporate decisions, offer a new explanation for the underperformance of hedge funds’ real estate strategies, and confirm the theoretical predictions in Deng et al. (2015).     

A Unified Theory of Tobin's q,Corporate Investment,Financing, and Risk Management

We propose a model of dynamic investment, financing, and risk management for financially constrained firms. The model highlights the central importance of the endogenous marginal value of liquidity (cash and credit line) for corporate decisions. Our three main results are: (1) investment depends on the ratio of marginal q to the marginal value of liquidity, and the relation between investment and marginal q changes with the marginal source of funding; (2) optimal external financing and payout are characterized by an endogenous double‐barrier policy for the firm's cash‐capital ratio; and (3) liquidity management and derivatives hedging are complementary risk management tools.     

External Financing and Liquidity

We explain the observed negative relation between market value of firms and their fund raising activities. Ours is not a signalling model. The firm's objective is to maximize the present value of its income. Considerations of cash availability (liquidity) and unfolding of uncertainty drive our model. Income from operations is an important source of liquidity. Low earnings are associated with low liquidity. Whether earnings are low or not is known to some extent in advance of the realization itself. External financing is pursued in anticipation of the earnings' realization in order to maintain a desired level of liquidity. Therefore, anticipated low earnings are associated with a high level of external financing. Of course, an anticipation of low earnings is also accompanied by a decrease in the firm's value. The empiricist who looks at time series of a firm's value and of its dividend/external financing announcements would then record positive correlation between value and cash distributions and negative correlation between value and external financing.     

Peer R&D disclosure and corporate innovation: Evidence from American depositary receipt firms

In this paper, we examine the effect of peer research and development (R&D) disclosures on corporate innovation. R&D disclosures can generate externalities for related firms, enabling those firms to better infer a project's likely payoffs and thus prioritize projects with higher net present values. We use a sample of foreign firms cross-listed on U.S. exchanges to investigate whether U.S. peer firms experience externalities from the cross-listing firm's R&D disclosures. We find that R&D disclosures by cross-listing firms are associated with greater innovation for industry peers in the U.S. market, especially when product market competition is high. The effect also varies with the home country's legal protection systems, disclosure environments, and accounting reporting rules. Cross-sectional analyses indicate that the externalities are more pronounced in industries or firms that rely more on external financing and firms subject to higher financial constraints; disclosures of higher quality appear to promote innovation by ameliorating financing frictions. Overall, this study provides evidence of R&D disclosure as an industry-wide determinant of innovation, thereby contributing to literature on the real effects of peer disclosures.     

Investment opportunities and share repurchases

We examine the over-investment motivation for share repurchases using a sample of 139 Real Estate Investment Trusts (REITs) between 1996 and 2010. By combining a REIT's property portfolio data with project ROAs from the underlying real estate market, we are able to create a unique measure of the firm's investment opportunity set. Controlling for other possible buyback rationales, we find that poor investment opportunities are related to higher levels of share repurchases. Conditioning on investment opportunities, we find that the level of cash is positively related to repurchases only for low investment opportunity set firms. We also find a negative relationship between share repurchase announcement returns and investment opportunities.     

Monetary policy and regional availability of debt financing

The relative availability of bond and bank financing should affect the firm's external financing and investment decisions. We define a measure that proxies for the regional borrowing inflexibility to substitute between bank and bond financing: “debt inflexibility”. Debt inflexibility tilts the firm's financial structure towards equity and reduces investment. The impact is stronger during the period of tight monetary policy, particularly for smaller firms and firms without banking relationships. Debt inflexibility increases the sensitivity of cash holdings to cash flows, reduces the likelihood of dividend payment and makes the firm more likely to pay equity in mergers and acquisitions.     

The association between human resource investment in IT controls over financial reporting and investment efficiency

This study investigates the association between human resource investment in information technology (IT) controls over financial reporting and its investment efficiency. To conduct the analysis, it uses novel hand-collected data on the number of IT control personnel. In particular, it uses the ratio of (1) the number of IT control personnel, (2) the number of IT control personnel who are certified public accountants to the total number of employees in a firm, and (3) the natural logarithm of average working experience of IT control personnel in months as a proxy for human resource investment in IT controls. This study finds that such investment is negatively associated with the firm's abnormal investment, suggesting that investing in IT control personnel enhances a firm's investment efficiency. Furthermore, not only quantitative but also qualitative investment in IT control personnel improves investment efficiency. We also find that the association between human resource investment in IT controls and a firm's investment efficiency is more pronounced for firms with lower financial reporting quality and information environment. The results of this study provide useful implications for management, regulators, and market participants, as they demonstrate the positive role of investment in IT control personnel on the firm's internal decision.     

The Effect of Taxes and Depreciation on Corporate Investment and Financial Leverage

This paper provides an analysis of the effect of corporate and personal taxes on the firm's optimal investment and financing decisions under uncertainty. It extends the DeAngelo and Masulis capital structure model by endogenizing the firm's investment decision. The authors' results indicate that, when investment is allowed to adjust optimally, the existing predictions about the relationship between investment-related and debt-related tax shields must be modified. In particular, the authors show that increases in investment-related tax shields due to changes in the corporate tax code are not necessarily associated with reductions in leverage at the individual firm level. In cross-sectional analysis, firms with higher investment-related tax shields (normalized by expected earnings) need not have lower debt-related tax shields (normalized by expected earnings) unless all firms utilize the same production technology. Differences in production technologies across firms may thus explain why the empirical results of recent cross-sectional studies have not conformed to the predictions of DeAngelo and Masulis.     

Corporate financing of investment opportunities in a world of institutional cross-ownership

Institutional cross-owners, specifically institutional investors with significant stakes in multiple firms in the same industry, are becoming increasingly common in the United States. In this paper, we investigate and find that the presence of institutional cross-owners facilitates a firm's financing of its investment opportunities, consistent with institutional cross-owners reducing the adverse selection concerns of those who provide capital for the investment opportunities. We then examine the conditions under which the presence of institutional cross-owners is likely to more significantly reduce adverse selection and thereby have even more of a positive effect on the financing of investment opportunities. We document that relative to transient institutional cross-owners, dedicated institutional cross-owners facilitate more financing of investment opportunities. We also find that institutional cross-owners facilitate the financing of investment opportunities even more for firms with greater dependence on external financing, those with an opaque financial reporting environment, and those with more product market competition. Our paper offers novel insight into how a firm can benefit from the presence of institutional cross-owners.     

房地产上市公司融资模式对投资行为的影响

借鉴 Aivazianetal 简化投资模型建立了融资模式对投资行为影响的理论模型,基于1998~2012年的面板数据,实证研究不同产权属性和不同规模房地产上市公司融资模式对投资行为的影响。研究发现：房地产上市公司的债务融资会促使投资增长,而股权融资会减少投资,内源性融资与投资行为的相关性并不显著;国有房地产上市公司的投资行为更加积极;大规模房地产上市公司受外部融资约束更强。为此,应完善房地产上市公司治理结构、拓宽融资渠道。     

The Interactions between the Investment, Financing, and Dividend Decisions of Major U.S. Firms

This paper uses 114 responses to a June 1988 mail questionnaire survey of the financial managers of the 1,000 largest U.S. firms to examine Modigliani and Miller's “separation principle”. The opinions of practicing financial managers were found to be consistent with Modigliani and Miller as well as with the work of other empirical researchers. Almost without exception, the direction of causality between investment and financing decisions was found to run from the former to the latter, and dividend decisions were found to be driven by profits and prior year's dividends rather than by the firm's investment and financing actions. Clearly, the beliefs of practicing financial managers seem to reflect acceptance of Modigliani and Miller's “separation principle.”     

What motivates managers?: Evidence from organizational form changes

We formulate and test several hypotheses on managerial motivation using organizational form changes in the real estate industry. We find that firms that switch to a more restrictive structure have increases in stock value and managerial ownership. Firms moving to a less restrictive structure have larger wealth effects when higher monitoring exists. Higher degree of financial distress and forced CEO replacement at the time of organizational form change are taken to be proxies for higher degree of (creditor) monitoring. The wealth effects are decreasing in the firm's level of free cash flow at the time of organizational form change.     

Investment and Financing Constraints: Evidence from the Funding of Corporate Pension Plans

I exploit sharply nonlinear funding rules for defined benefit pension plans in order to identify the dependence of corporate investment on internal financial resources in a large sample. Capital expenditures decline with mandatory contributions to DB pension plans, even when controlling for correlations between the pension funding status itself and the firm's unobserved investment opportunities. The effect is particularly evident among firms that face financing constraints based on observable variables such as credit ratings. Investment also displays strong negative correlations with the part of mandatory contributions resulting solely from unexpected asset market movements.     

Financial Aspects of Business Cycles: An Analysis of Balance Sheet Adjustments of U.S. Nonfinancial Enterprises over the Twentieth Century

This paper formulates and tests a model of asset and financing adjustments of nonfinancial enterprises over the twentieth century. Asset adjustments change the expected income and operating risk of firms while financing adjustments change financial risk. To protect debt and equity investors from a conflict of interest problem, an up‐front contract develops an “assignment” rule for managing the firm's balance sheet whereby managers make investment decisions that conform to the risk aversion of stockholders and financing decisions that offset changes in operating risk resulting from investment decisions. Empirical evidence gathered in this paper fails to reject the predictions of the model.     

The Real Effects of Modern Information Technologies: Evidence from the EDGAR Implementation

Using the implementation of the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system from 1993 to 1996 as a shock to information dissemination technologies, we examine how a significant reduction in disclosure processing costs affects the real economy. We find that the EDGAR implementation leads to an increase in corporate investment and that this effect is concentrated in value firms. We provide evidence that improved equity financing and enhanced managerial incentives are likely the underlying mechanisms. Specifically, the EDGAR implementation leads to an increase in a firm's stock liquidity, a decrease in the cost of equity capital, and an increase in the level of equity financing. Consistent with the monitoring effect of broad information dissemination, the EDGAR implementation leads to an increase in a firm's operating performance. Our findings suggest that it is important to consider information dissemination beyond information production when examining the real effects of corporate disclosures.     

State-ownership and financial constraints on investment of Chinese-listed firms: new evidence

We examine how state-ownership affects financial constraints on investment of Chinese-listed firms during 1999–2008. We find that although an average sample firm experiences some degree of financial constraints, state-ownership does not necessarily help in reducing the firm's financial constraints on investment. Further evidence shows that state-ownership does not lead to more borrowing from the Chinese banking sector, implying that state-ownership does not necessarily reduce the firm's financial constraints via the state-controlled banking sector. We consider not only the standard factors in the investment equation, but also the firm's equity financing behaviour explicitly. The result is robust to both the conventional proxy for financial constraints, i.e. the investment–cash-flow sensitivity, and a recently developed proxy for financial constraints, i.e. the KZ index. Our results suggest that China's corporatisation movement is effective in that soft budget constraints once enjoyed by former state-owned enterprises have been removed along with the progress of corporatisation. These firms, although still state-involved, can be seen as modern corporations operating in a market environment.