Do analysts’' forecast properties deter suboptimal labor investment decisions? Evidence from Regulation Fair Disclosure

We examine whether analysts' forecast properties deter inefficient labor investment decisions. Using accuracy and dispersion as analysts' forecast properties, we find that more accurate and less dispersed forecasts are associated with less inefficient corporate labor investments. Utilizing Regulation Fair Disclosure (Reg FD) as an exogenous variation to analysts' forecast activities, we find a causal relationship between analysts' forecast properties and labor investment inefficiency. We also find that more accurate and less dispersed forecasts decrease labor cost stickiness. Our results are consistent with the view that analysts' forecast properties enhance the information environment, which, in turn, improves corporate labor investment decisions.     

Long-Term Financing Decisions: Views and Practices of Financial Managers of NYSE Firms

This paper reports the findings of a 1990 survey of a sample of NYSE firms conducted to learn about the managerial opinions and practices with respect to longterm financing decisions. Relying on a hierarchy of financing sources is discovered to be a far more common practice among the sample firms than maintaining a target capital structure. The risk-return dimensions of the investment being financed are found to be the most important inputs in determining financing decisions. In spite of the perceived lack of fairness in the market pricing of their securities, the sample firms do not report making financing decisions to signal a need for reevaluation of their securities. Financial managers display a much greater flexibility with capital structure decisions than with either dividend policy decisions or investment decisions. The firms which attempt to maintain target capital structures are found to perceive the average debt ratios in their respective industries to be important determinants of their own debt ratios. The firms which follow financing hierarchies on the other hand, are found to view their firms' past profits and past growth to be important determinants of their debt ratios.     

Board diversity and corporate propensity to R&D spending

Drawing on collective contributions and group performance perspectives, this paper examines the role of board diversity in firms' R&D investment decisions. Building on a fault-line argument about a team's demographic attributes, this study also decomposes the impact of demographic and cognitive diversity on R&D spending. The study sample contains UK data of non-financial companies covering the period between 2005 and 2018. We employ panel data analysis techniques and control for potential endogeneity issues through the application of the two-step system Generalised Method of Moments (GMM) estimations. The findings demonstrate a positive and significant relationship between board diversity and level of corporate R&D spending. The findings also show cognitive diversity as significantly positively associated with corporate R&D investments. Demographic diversity, however, has an insignificant relationship with corporate spending on R&D. The results further show that demographic diversity negatively moderates the relationship between cognitive diversity and spending on R&D. Our main findings document that the board's attributes as a group significantly influence decisions of strategic importance such as, investment in R&D projects. The findings on sub-dimensions of board diversity imply that as compared to demographic diversity, functional/cognitive diversity is more relevant to strategic decisions and related outcomes. The study has practical implications for shareholders in documenting the importance of board diversity, and policy implications for regulators in highlighting the separate roles of behavioural and cognitive diversity in shaping firms' strategic investment decisions.     

An empirical re-examination of the dividend–investment relation

Modigliani and Miller show that, in perfect capital markets, the optimal investment decisions of a firm are not affected by how these investments are financed. Miller and Modigliani further imply that, under the assumption of perfect capital markets, a firm's investment decisions are not affected by its dividend decisions, although dividend decisions may or may not be influenced by investment decisions. Fama and Miller label this result the separation principle. Most recent studies of the separation principle that take into account the existence of market imperfections report sharply contradictory results. This paper tests for linear and nonlinear causality between dividends and investments using both firm-specific and aggregate data for a sample of 417 firms over the 1962 to 2004 period. In general, linear causality tests support the separation principle, whereas nonlinear causality test results contradict the separation principle by revealing strong bi-directional linkages between dividends and investments.     

INFLATION,INVESTMENT, AND DEBT

In this paper the effect of inflation on firms' investment and debt-financing decisions is examined. Inflation affects optimal investment and financing directly through the probability of accounting loss and the real value of depreciation and interest tax shields. In addition, when corporate and differential personal taxes cause investment and financing decisions to interact, inflation has indirect effects on these decisions through their interactions. In general, the overall effects of inflation on optimal investment and debt are ambiguous in sign. For tax-exempt firms, however, optimal investment and debt are independent of inflation. For firms that are always in a tax-paying position, higher inflation reduces optimal investment without affecting optimal debt. Furthermore, inflation causes total firm value to decrease if the depreciation rate exceeds the firm's debt/asset ratio.     

The role of equity compensation in reducing inefficient investment in labor

We investigate whether equity compensation incentivizes executives to make efficient labor investment decisions. In doing so, we examine the extent to which stock options and restricted stock differentially influence labor investment decisions. Consistent with theoretical predictions, we find that stock options exacerbate, while restricted stock mitigates, inefficient labor investment. The effect of stock options (restricted stock) are weaker (stronger) for financially constrained firms. Our results are robust to alternative proxies for inefficient labor investment and when addressing a range of endogeneity concerns. Our research demonstrates that stock options and restricted stock matter in executives' labor investment decisions, but in different ways. Our findings have implications for future research, suggesting that stock options and restricted stock need to be separately considered when examining the impact equity compensation has on capital or investment decision making; and for executive remuneration practice.     

经开区招商引资政策对企业投资的影响

国家级经济开发区政府招商引资,往往需要从产业集聚、税收优惠、政府职能和宏观税负等几个不同的方面,分别对企业投资带来的影响进行必要的考察,企业投资决策也往往受到地方政府各种优惠政策等几个层面的影响。目前学界研究对政府招商引资与企业投资决策考虑因素较为单一,缺乏深度解析,本文就此提出相关构想,引导未来招商引资研究向深层领域拓展。     

The Israeli XBRL Adoption Experience

eXtensible Business Reporting Language (XBRL) is a language for the electronic communication of business and financial data which is revolutionizing business reporting around the world. It is a tool to bridge potential language barriers and unify financial reporting. This has appeal to foreign investors, among others, who can rely on information in XBRL‐tagged financial reports to make investment decisions without having to translate financial statements from local language. In 2008, Israel required most public companies to adopt International Financial Reporting Standards (IFRS) for financial reporting and to use XBRL‐tagged reporting format, as part of an aggressive effort to make its capital markets more transparent and attractive for foreign investors. In this paper, we study all Israeli public companies and analyze the accuracy and reliability of their XBRL‐tagged financial statements that are available on MAGNA, the Israel Securities Authority's electronic system. We describe the process by which the XBRL‐based data were collected and reported. We document, categorize, and analyze deficiencies in the XBRL‐tagged filings, and inconsistencies between them and the Hebrew‐based annual reports. We observe pervasive data entry errors resulting in inaccurate XBRL‐generated financial reports, which went undetected for over one year. Further, first year XBRL reporting (in conjunction with IFRS adoption) did not increase foreign investment in the Israeli capital markets. This analysis allows us to better understand the benefits and challenges of the adoption of XBRL.     

Reprint of Investors’ distraction and strategic repricing decisions

In this paper I analyze investors’ reactions to changes in the expense ratios of equity mutual funds. I show that investment flows’ response to fees cannot be fully explained by looking at investors’ performance sensitivity. While performance sensitivity monotonically increases with past performance, price sensitivity does not: investors who buy top past performers seem to be “distracted” by the fund’s previous return and pay relatively little attention to the expense ratios. Moreover price sensitivity increases with fund visibility while performance sensitivity decreases, and while looking at data from 1986 to 2006 no discernible trend can be observed in the average performance sensitivity, price sensitivity strongly increases due to the dramatic increase in the availability of mutual funds’ information for retail investors. Finally I show that investment companies strategically time their repricing decisions in order to exploit time variations in price and performance sensitivities, and that fund governance quality affects the degree to which investment companies engage in this opportunistic behavior.     

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.     

Investors’ distraction and strategic repricing decisions

In this paper I analyze investors’ reactions to changes in the expense ratios of equity mutual funds. I show that investment flows’ response to fees cannot be fully explained by looking at investors’ performance sensitivity. While performance sensitivity monotonically increases with past performance, price sensitivity does not: investors who buy top past performers seem to be “distracted” by the fund’s previous return and pay relatively little attention to the expense ratios. Moreover price sensitivity increases with fund visibility while performance sensitivity decreases, and while looking at data from 1986 to 2006 no discernible trend can be observed in the average performance sensitivity, price sensitivity strongly increases due to the dramatic increase in the availability of mutual funds’ information for retail investors. Finally I show that investment companies strategically time their repricing decisions in order to exploit time variations in price and performance sensitivities, and that fund governance quality affects the degree to which investment companies engage in this opportunistic behavior.     

Empirical Evidence of Risk Shifting in Financially Distressed Firms

This paper provides evidence of risk‐shifting behavior in the investment decisions of financially distressed firms. Using a real options framework, I show that shareholders' risk‐shifting incentives can reverse the expected negative relation between volatility and investment. I test two hypotheses that are consistent with risk‐shifting behavior: (i) volatility has a positive effect on distressed firms' investment; (ii) investments of distressed firms generate less value during times of high uncertainty. Empirical evidence using 40 years of data supports both hypotheses. I further evaluate the effect of various firm characteristics on risk shifting, and estimate the costs of the investment distortion.     

The Relationship between Firm Investment and Financial Status

Firm investment decisions are shown to be directly related to financial factors. Investment decisions of firms with high creditworthiness (according to traditional financial ratios) are extremely sensitive to the availability of internal funds; less creditworthy firms are much less sensitive to internal fund availability. This large sample evidence is based on an objective sorting mechanism and supports the results of Kaplan and Zingales (1997), who also find that investment outlays of the least constrained firms are the most sensitive to internal cash flow.     

Government intervention and investment efficiency: Evidence from China

The extant corporate investment literature has documented that information asymmetry and agency conflicts between managers and outside investors prevent firms from making optimal investment decisions. In this study, we investigate whether government intervention, as another form of friction, distorts firms' investment behavior and leads to investment inefficiency. Using Chinese data, we test this by measuring government intervention at two different levels. First, we compare investment efficiency between SOEs and non-SOEs. We find that the sensitivity of investment expenditure to investment opportunities is significantly weaker for SOEs. Second, we measure government intervention by whether a firm is politically connected through the employment of top executives with a government background. We find that political connections significantly reduce investment efficiency in SOEs. However, we do not find such evidence in non-SOEs. Taken together, our findings suggest that government intervention in SOEs through majority state ownership or the appointment of connected managers distorts investment behavior and harms investment efficiency.     

Optimal Sequential Investment When Capital is Not Readily Reversible

When investment opportunities arrive one at a time and are reviewed sequentially, a corporation's optimal policy differs from a standard net present value rule if the corporation exercises control over an industry state variable and control is costly. The first condition presupposes a degree of market power for the firm; the second occurs if corporate investment decisions are imperfectly reversible. To address the problem of optimal investment in this context, a firm's investment decisions are modeled as a Markov reward process. The causes of economic irreversibility are discussed and general propositions concerning the optimal investment policy are derived. These propositions are then applied to the optimization of an exploration program by an oligopolistic firm (a price leader). Under particular demand and distributional assumptions, solutions for the optimal decision rule and the value of the exploration program are obtained and their properties examined.     

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.     

Investment opportunities and market reaction to capital expenditure decisions

In this study, we argue that share price reaction to a firm's capital expenditure decisions depends critically on the market's assessment of the quality of its investment opportunities. We postulate that announcements of increases (decreases) in capital expenditures positively (negatively) affect the stock prices of firms with valuable investment opportunities. Contrarily, we predict that announcements of increases (decreases) in capital spending negatively (positively) affect the share prices of firms without such opportunities. Our empirical results are generally consistent with these predictions. Overall, empirical evidence supports our conjecture that it is the quality of the firm's investment opportunities rather than its industry affiliation which determines the share price reaction to its capital expenditure decisions.     

Real options and earnings-based bonus compensation

This study extends the works of Mauer and Sarkar (2005) and Andrikopoulos (2009) by incorporating a regime-dependent earnings-based bonus into managerial compensation. Examining the individual effects of ownership shares and earnings-based bonus compensation, we find that the former provides managers with incentives to issue debt, whereas the latter induces the opposite result, although consistent impacts are found for the two types of compensation on both agency costs and the optimal investment decisions of managers. When managerial compensation comprises both ownership shares and an earnings-based bonus, there are significant differences in the effects of these two types of performance compensation on managers’ optimal investment and financing decisions, agency costs, optimal debt ratios and credit spreads, as a result of the specific interactions between the investment and financing decisions.     

Economic policy uncertainty and firm investment decisions: Dilemma or opportunity?

In an environment of economic policy uncertainty (EPU), how to improve efficiency and optimize the scale of firm investment is an important topic worthy of attention. This paper examines the impact of EPU on firms' investment decisions, using Chinese A-share listed companies from 2007 to 2019 as a research sample. The study finds that macro EPU inhibits the increase of firms' investment scale and efficiency while exacerbating the risk of overinvestment or underinvestment. Local EPU enhances a firm's investment scale but simultaneously exacerbates the risk of over- or underinvestment, which in turn inhibits investment efficiency. The mechanism test shows that, first, macro EPU promotes firms' R&D investment but inhibits their green investment. In contrast, local EPU inhibits R&D investment and promotes green investment. Second, macro EPU has a significant negative effect on firms' business performance, while local EPU has a smaller effect. Therefore, in an uncertain environment, the government should actively stabilize the macroeconomic environment, and firms should actively optimize investment structures and improve their risk prevention mechanisms.