The dividend policies of all-equity firms: A direct test of the free cash flow theory

This paper finds support for Jensen's (1986) hypothesis that dividends and debt are substitute mechanisms for controlling the agency costs of free cash flow. We find that dividend payout ratios of a sample of all-equity firms are significantly higher than those of a control group of levered firms. Further, within the group of all-equity firms, firms with lower managerial holdings have higher payout ratios. These results hold after controlling for free cash flow and growth rates. Overall, our evidence suggests that dividends and managerial ownership are substitute mechanisms for reducing agency costs in all-equity firms.     

Debt finance and the cost of management ownership: Some elementary results

Increased debt reduces a company's equity base, which reduces the dollar investment a manager must make to hold a given proportion of stock. Therefore, it is often argued, managers' effort incentives are improved by high leverage. This paper shows that while risky debt reduces the cost of providing managers with substantial equity ownership, the cheaper equity captures less of the fruits of the manager's effort. Managers' effort incentives are improved by high debt levels only under quite restrictive conditions. These conditions are more plausible when agency problems are due to a managerial propensity to expand size by investing in negative net present value projects. The results also imply that when debt is increased to reduce the agency costs of free cash flow, the accompanying covenants should allow for substantial cash distributions to shareholders even before bondholder claims are satisfied.     

Share repurchases,shareholder rights,and corporate governance provisions

Grounded in agency theory, this study seeks to explore how repurchase activity is influenced by the strength of shareholder rights. The empirical evidence shows that firms where shareholder rights are weaker tend to repurchase less stock. I argue that this is because managers of firms with weak shareholder rights are better able to exploit the weak shareholder rights and retain more cash within the firm, potentially to extract private benefits as alleged by the free cash flow hypothesis. Managers of firms with strong shareholder rights, on the contrary, are forced to disgorge cash to stockholders in the form of repurchases. In addition, I test the dividend-substitution hypothesis and find no evidence that repurchases substitute for dividends.     

Moral hazard,debt overhang and capital structure

This paper investigates the impact of managerial moral hazard on the debt overhang of a firm by constructing a contingent claims model in which the manager faces costly effort. Using a calibrated capital structure model, we show that the costs of debt overhang become more serious in the presence of managerial moral hazard. Such costs even account for more than half of the total agency costs at a high level of cash flow. Moreover, in contrast to the results of Hackbarth and Mauer (2012), our model predicts a U-shaped relationship between the leverage ratio and investment opportunities of a firm, which is caused by managers’ moral hazard. Finally, by considering this moral hazard, we also show the coexistence of low leverage ratios and high credit spreads, which explains the phenomenon of “low debt levels and high credit spreads” observed in practice.     

基于债务约束的自由现金流过度投资问题研究

自由现金流理论认为,当企业存在大量自由现金流时,管理者倾向于过度投资。债务控制是降低因自由现金流引起的代理成本的有效方法之一。模型检验发现,我国制造业上市公司并不显著存在自由现金流量的过度投资行为;债务约束效应在我国没有发挥应有的作用。     

Characteristics of firms that issue convertible debt versus convertible preferred stock

This study examines the characteristics of firms that issue convertible debt versus firms that issue convertible preferred stock. The findings are consistent with the agency, information asymmetry, optimal capital structure, financial distress, and tax benefits hypotheses. The findings also indicate that these two types of convertible securities are used to raise external capital by distinctively different groups of firms. First, convertible preferred stock issuing firms have larger nondebt tax shields and higher levels of financial, operating, and bankruptcy risks than convertible debt issuing firms. Second, firms that issue convertible debt have greater free cash flow (financial slack) and growth potential than firms that issue convertible preferred stock.     

对外报告变化对管理决策行为影响的试验分析

本文主要验证在我国现行报告制度下,公司对外报告次数变化导致公司管理当局进行决策的选择行为。由于外部报告产生的资本市场压力会直接或间接影响管理人员的决策行为和决策动机,当决策项目产生的会计盈余时与公司未来长期盈余之间存在矛盾,管理者在进行项目决策时,面临外部报告的资本市场压力,内部代理问题和财务分析师的盈利预测相关因素影响,管理者通常选择短期利润最大化的项目而不是选择长期盈余最大项目,从而导致公司管理层的决策短期化。     

Does having a semimandatory dividend policy enhance investor confidence? Research on dividend-financing behavior

Enhancing investor confidence is crucial for sustainable and stable development of the capital market. Does having a semimandatory policy to pay dividends help to enhance investor confidence? What is the origin of the cash dividend paid by companies to meet regulatory requirements so as to enhance investor confidence? Based on these considerations, this paper uses the exogenous policy shock that in 2006 the China Securities Regulatory Commission required listed companies to pay accumulated dividends of no less than 20 % of average annual distributable profits and adopts a panel difference-in-difference estimation strategy to explore whether this new policy has significantly enhanced investor confidence. In addition, it explores the source of external financing for cash dividends by examining dividend-financing behavior. The results show that the semimandatory dividend policy has led to new dividend-financing behavior by listed companies. The cash dividend paid by companies comes mainly from external financing, especially a net increase in debt. The paper expands the traditional theory of dividend payment and provides a reference point for decision-making by shareholders, company managers, and regulatory agencies.     

资本结构与代理成本关系研究评述

资本结构与代理成本之间的关系始终是研究者关注的焦点。本文认为,资本结构中权益资本和债务资本会引发不同的代理成本,其产生的根源在于管理者与股东以及债权人与权益投资者之间存在不同的利益格局。在第一类和第二类代理冲突中,债务均具有重要的地位,但债务在第二类代理冲突中的作用与第一类冲突中显著不同。当企业股权集中时,大股东掌握着企业的实际控制权,企业的主要代理问题成为控股大股东与中、小股东之间的代理问题,这会导致其资本结构的代理成本与第一类和第二类代理成本显著不同。     

资本结构与代理成本关系研究评述

资本结构与代理成本之间的关系始终是研究者关注的焦点。本文认为,资本结构中权益资本和债务资本会引发不同的代理成本,其产生的根源在于管理者与股东以及债权人与权益投资者之间存在不同的利益格局。在第一类和第二类代理冲突中,债务均具有重要的地位,但债务在第二类代理冲突中的作用与第一类冲突中显著不同。当企业股权集中时,大股东掌握着企业的实际控制权,企业的主要代理问题成为控股大股东与中、小股东之间的代理问题,这会导致其资本结构的代理成本与第一类和第二类代理成本显著不同。     

Capital expenditure announcements and anti-takeover barriers

In this paper, we compare capital budget announcements by firms with anti-takeover mechanisms in place to announcements by firms without takeover barriers during the period 1980 to 1995. We find that anti-takeover provisions do not affect investors’ average reactions to investment choices. Market responses are heterogeneous; however, and differ according to size, growth opportunity, the availability of free cash flow and exposure to the capital markets. We find evidence consistent with managerial entrenchment when firms are insulated from the threat of takeover and have enough free cash flow to avoid raising external capital. We also find that for small firms, the reaction to capital investment announcements are positively related to free cash flow when managers have high growth opportunities, but negatively related when investment opportunity is small. This result is consistent with Noe (1988), who shows that restricting managers’ investment choices to positive NPV projects is necessary to obtain the pecking order results of Myers and Majluf (1984).     

投资现金流敏感性研究述评

大量的经验文献支持了流动性假说,认为内部现金流是影响公司投资的一个重要因素。文中基于信息不对称下的融资约束理论与自由现金流的代理成本假说,回顾了关于投资现金流敏感性存在及其根源的国内外相关研究成果,梳理了该领域的研究脉络,并对主要结论进行了总结与评论。对文献研究发现,大多数研究均证实了投资与现金流之间具有较强的敏感性,但挖掘这种敏感性的根源却尚未达成一致的结论。尤其随着股权结构的引入,考虑到管理层内部持股的激励与堑壕效应、股权集中下控股股东的监督与侵占效应,该领域的研究纷繁复杂。但基于股权结构的研究是揭示这种敏感性的根源、探索非效率投资治理机制的有效途径。     

Managerial Compensation and Capital Structure

We investigate the interaction between financial structure and managerial compensation and show that risky debt affects both the probability of managerial replacement and the manager's wage if he is retained by the firm. Our model yields a rich set of predictions, including the following: (i) The market values of equity and debt decrease if the manager is replaced; moreover, the expected cash flow affirms that retain their managers exceeds that affirms that replace their managers, (ii) Managers affirms with risky debt outstanding are promised lower severance payments (golden parachutes) than managers affirms that do not have risky debt. (Hi) Controlling for firm's size, the leverage, managerial compensation, and cash flow of firms that retain their managers are positively correlated, (iv) Controlling for the firm's size, the probability of managerial turnover and firm value are negatively correlated, (v) Managerial pay-performance sensitivity is positively correlated with leverage, expected compensation, and expected cash flows.     

融资结构与资本预算方法选择

传统的资本预算方法因没有考虑负债对企业的影响,权衡理论认为负债会给企业带来节税收益,降低股东与经理之间的代理成本,同时也会给企业带来财务困境成本和股东与债权人之间的代理成本。修正现值法、权益现金流量法和加权平均资本成本法,是西方主流反映负债融资对投资项目价值正负效应杠杆企业的资本预算方法。本文对此进行了探讨。     

Democracy,rule of law,and corporate governance—a liquidity perspective

This study examines whether and how democracy and rule of law—two overarching country-level governance variables—influence corporate governance. Given that corporate liquidity (cash holdings) is a good channel for examining the quality of corporate governance, the effects of democracy and rule of law on corporate governance can be identified using the liquidity approach. A review of 67 countries from 1996 to 2010 demonstrates that democracy and rule of law indeed have bearings on corporate governance. More specifically, results indicate that firms are more inclined to hoard cash to take advantage of growth opportunities when the level of democracy is higher or rule of law is stronger, suggesting that agency costs are lower and interests of managers and shareholders are more aligned under such circumstances. In addition, the negative effect of debt issuance and dividend payment on cash is more pronounced when the level of democracy is higher or rule of law is stronger, suggesting that these two approaches become more effective in reducing agency costs and transitively cash holdings under such circumstances. Moreover, the positive effect of democracy and rule of law on corporate governance appears to be reinforced when rule of law is stronger and the level of democracy is higher, respectively. Furthermore, higher level of economic development helps reap the benefit of democracy and rule of law in terms of improving corporate governance and reducing agency costs.     

The weighted average cost of capital is not quite right

A firm's cost of capital used in discounted cash flow analysis is commonly calculated as a weighted average of the after tax costs of the firm's various sources of financing (equity, debt, preferred stock). Its use implies that for investment projects earning precisely the WACC the cash (in)flow is exactly sufficient to reward all the suppliers of finance with their respective costs of capital. However, the necessary cash flow (normal profit) implied by the WACC is inadequate to provide the cash flows to the individual sources of financing when they are considered separately. This note discusses the problem (WACC is a linear approximation of a nonlinear relationship) and presents a modification of the WACC which is conceptually superior to the WACC as commonly calculated.     

Dividend reinvestment plans and Pecking Order capital structure behavior: An empirical investigation

Due to the asymmetric information effect, corporations have been reluctant to use external sources of equity capital. The adoption of dividend reinvestment plans (DRP) by large numbers of firms may indicate an alternative way to raise external equity funds. It has been shown that many factors may explain a firm’s decision concerning the source of the shares made available to DRP participants. The hypothesis to be tested is that the nature of the DRP actually selected may be predicted by financial characteristics such as cash flow generation, investment needs, historical dividend policy, firm ownership structure and firm capital structure. Using logistic regression analysis, results of joint tests of financial variables suggested by the Pecking Order Theory of capital structure indicate significant support for the hypothesis. Specifically, ownership structure, historical dividend policy and debt ratio are found to be key determinants of the type of DRP utilized.     

The impact of corporate strategy on the capital structure of Australian companies

Research into the capital structure of firms has been the subject of extensive empirical investigation but further progress may be constrained by the conventional paradigm underlying most of this work. This paper seeks to extend the debate by examining the endogenous influence of corporate strategy on financing decisions made by firms. While the theoretical specification of the possible relationship has to be developed further, various models were constructed and company data from Australia, an economy with some notoriety for fairly loose corporate debt management, was used to examine various hypothesized relationships. Our analysis suggests that corporate strategy influences capital structure, particularly for the most diversified firms, and that the emerging relationship is complex. Profit, cash flow, the rate of growth and the level of earnings risk are important additional internal influences on capital structure. The results are reasonably robust and indicate that this focus of enquiry has considerable potential for further resolution of the capital structure puzzle, as well as contributing to the debate on the impact of institutional shareholders on the corporate strategy of the firms in which they invest.     

试论现金流量表分析指标体系的构建

现金流量表是反映企业一定会计期间内现金及现金等价物流入和流出信息的动态会计报表。科学地分析和充分利用现金流量表信息,是报表使用者进行正确决策的前提之一。因此本文拟构建以偿债能力、收益质量、营运效率、发展状况、社会贡献能力为分析目标的指标体系来补充丰富传统的会计报表指标分析体系,从而更全面深入地评价企业的财务状况。     

Bankruptcy,interest tax shields and ‘optimal’ capital structure: A cash flow formulation

This paper presents a cash flow formulation of the capital structure problem in the presence of corporate taxes. In contrast to the classic result of Modigliani and Miller, it is shown that an optimal capital structure does not involve exclusive reliance on debt financing.