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1.
We investigate whether imputation tax credits are capitalised into Australian stock prices by utilising discounted cash‐flow valuation models and examining the relation between earnings yields and imputation credit yields. While imputation credits are valuable to many investors, the evidence that they are reflected in share prices is at best mixed and largely unconvincing. Our results reveal that imputation credits fail to lower realised returns casting doubts over whether imputation credits are priced from the perspective of longer‐term buy‐and‐hold investors. If so, such investors can expect to fully benefit from their imputation credits, and imputation effects may not impact on the cost of capital.  相似文献   

2.
In a dividend imputation tax system, equity investors have three potential sources of return: dividends, capital gains and franking (tax) credits. However, the standard procedures for estimating the market risk premium (MRP) for use in the capital asset pricing model, ignore the value of franking credits. Officer (1994) notes that if franking credits do affect the corporate cost of capital, their value must be added to the standard estimates of MRP. In the present paper, we explicitly derive the relationship between the value of franking credits (gamma) and the MRP. We show that the standard parameter estimates that have been adopted in practice (especially by Australian regulators) violate this deterministic mathematical relationship. We also show how information on dividend yields and effective tax rates bounds the values that can be reasonably used for gamma and the MRP. We make recommendations for how estimates of the MRP should be adjusted to reflect the value of franking credits in an internally consistent manner.  相似文献   

3.
We investigate whether and, if so, how stakeholder orientation affects the value of cash holdings by disciplining inefficient management and reducing agency costs. In so doing, we exploit the staggered enactment of constituency statutes across different states as an exogenous shock that increases the degree of stakeholder orientation substantially. Specifically, we gauge the monitoring effect of stakeholders by using the market value of cash framework of Faulkender and Wang (2006). We find that on average the marginal value of cash holdings increases significantly, both statistically and economically, after the passage of constituency statutes. The effect of constituency statutes on the value of cash holdings is stronger for firms with relatively weaker stakeholder power, high agency costs, and high information asymmetry. In subsequent tests, we show that investment efficiency in M&As and capital expenditures has improved significantly after the adoption of constituency statutes suggesting that heightened stakeholder monitoring over investments is a potential channel to enhance the value of cash holdings. Overall, our results suggest that stakeholder orientation increases the value of cash holdings by mitigating agency problems.  相似文献   

4.
Since the introduction of the Australian imputation tax system, there have been problems both in the measurement of the market value of franking (imputation tax) credits and in their application to estimating cash flows and the cost of capital. In the present paper, we provide a convenient and robust resolution to the above problems in the context of an internally consistent set of equations for the cost of capital, asset valuation and the capital asset pricing model (CAPM). The equations apply under both classical and imputation tax systems and under differential taxation of dividends, capital gains and interest. The simple form of the CAPM presented here is shown to encompass more complex versions of the CAPM, which attempt to accommodate the effect of personal taxes. The valuation equations require an estimate of the market value of $1 of the firm's dividends, within which is embedded the market value of the imputation tax credits. Separate estimates of the value of imputation tax credits, or Officer's gamma factor, are not required.  相似文献   

5.
The value of an asset is equal to the present value of its expected future cash flows. It is affected by the magnitude, timing and riskiness, or volatility, of the cash flows. We hypothesize that if the expected values of two assets?? cash flows are equal, the value of the asset with more volatile cash flows will be lower. Furthermore, we examine the impact of the volatility of cash flows on the volatility of prices. We consider a simple experimental environment where subjects trade in an asset which provides dividends from a known probability distribution. The expected value of the dividends is identical in all experimental treatments. The treatments vary with respect to the volatility of dividends. We find that when dividends are more volatile, transaction prices are lower. We also find that the volatility of prices is lower in the treatment with highly volatile dividends. In addition, as expected, trading volume is lower when cash flows are less volatile.  相似文献   

6.
This study examines the sensitivity of equity values of oil producers to changes in the uncertainty of future oil prices. We document that this sensitivity is negatively correlated with a firm's debt ratio and its production costs. These results indicate that companies that are more likely to experience financial distress or underinvestment from low cash flows are adversely affected by increases in the uncertainty of future cash flows. We conclude that corporate risk management can increase shareholder value by reducing the expected costs of financial distress and underinvestment.  相似文献   

7.
This research examines whether the fair value of mortgage servicing rights (MSRs) based on managerial inputs (Level 3) better reflects the cash flow and risk characteristics of the underlying assets than the fair value of MSRs based on market inputs (Level 2). Using mortgage servicing fees as a proxy for the underlying cash flows, we find that the valuation multiples for MSRs based on Level 3 inputs are more positively associated with the persistence of future servicing fees compared with the fair value of MSRs based on Level 2 inputs. We also document that only the valuation multiples based on Level 3 fair values are negatively associated with proxies for risk factors. Our results suggest that, although unobservable inputs are subject to managerial discretions, managers can generate higher quality fair value estimates than market inputs due to their information advantage, especially when the market for the underlying asset is inactive.  相似文献   

8.
Based on the Officer (1994) model, Gray and Hall (2006) derive a relation between franking credits and the market risk premium. On the basis of this relation, the authors show that traditional estimates of the value of franking credits imply dividend yields that are inconsistent with historical equity market data. This inconsistency arises from assumptions about the franking credit payout ratio and the value of franking credits retained. With less than a 100 per cent payout ratio some franking credits are retained within the firm. Assuming that the retained franking credits have no value leads to the inconsistency in dividend yields. Current practice in the application of Officer's model makes this assumption and, therefore, leads to inconsistent results. Gray and Hall suggest resolving the inconsistency by setting the value of all franking credits to zero. An alternative solution is to recognize that retained franking credits might have a positive value.  相似文献   

9.
A key question in asset pricing is the extent to which tax effects are passed through market prices or are capitalised in them. New Zealand stock dividends provide a useful window into this debate because of (1) the existence of both taxable and non-taxable stock dividends, and (2) the particular form of imputation tax system which allows the full pass through of corporate taxes to the investor on the proportion of profits which are distributed either as cash or taxable stock dividends. We present evidence that investors value future tax benefits associated with imputation tax credits.  相似文献   

10.
We investigate how corporate governance impacts firm value by comparing the value and use of cash holdings in poorly and well-governed firms. We show that governance has a substantial impact on value through its impact on cash: $1.00 of cash in a poorly governed firm is valued at only $0.42 to $0.88. Good governance approximately doubles this value. Furthermore, we show that firms with poor corporate governance dissipate cash quickly in ways that significantly reduce operating performance. This negative impact of large cash holdings on future operating performance is cancelled out if the firm is well governed.  相似文献   

11.
Some recent empirical evidence suggests that stock prices are not properly modeled as the present discounted value of expected dividends. In this paper, we estimate a present value model of stock price that is capable of explaining the observed long-term trends in stock prices. The model recognizes that firm managers control cash dividend payments. The model estimates indicate that stock price movements may be explained by managerial behavior.  相似文献   

12.
Feedback Effects and Asset Prices   总被引:3,自引:0,他引:3  
Feedback effects from asset prices to firm cash flows have been empirically documented. This finding raises a question for asset pricing: How are asset prices determined if price affects fundamental value, which in turn affects price? In this environment, by buying assets that others are buying, investors ensure high future cash flows for the firm and subsequent high returns for themselves. Hence, investors have an incentive to coordinate, which may generate self‐fulfilling beliefs and multiple equilibria. Using insights from global games, we pin down investors' beliefs, analyze equilibrium prices, and show that strong feedback leads to higher excess volatility.  相似文献   

13.
I examine the long-term valuation consequence of investment in mergers and acquisitions on acquiring firms through the “anticipation effect,” in which forward-looking prices embed investors’ expectations about the profitability of firms’ future acquisitions. Using a sample of firms with past acquisitions, I find that their market valuations depend on both the profitability of their past acquisitions and their current free cash flow. Among firms with positive free cash flow (when future acquisitions are likely), those with a worse history of value-destroying acquisitions experience lower market valuations. Among firms with negative free cash flow (when future acquisitions are less likely), firm value is not systematically related to acquisition history. These findings are consistent with investors forming expectations about the profitability of future acquisitions based on realized acquisition outcomes and valuing these firms based on their likelihood of making future acquisitions. They also provide support for using observed market prices as a proxy for investors’ expectations about future investment opportunities.  相似文献   

14.
We show theoretically that variable production costs reduce systematic risk of firms' cash flows if capital and variable inputs are complementary in firms' production and input prices are procyclical. In our dynamic model, this operating hedge effect is weaker for more profitable firms, giving rise to a gross profitability premium. Moreover, gross profitability and value factors are distinct and negatively correlated, and their premia are not captured by the capital asset pricing model (CAPM). We estimate the model by simulated method of moments, and find that its main implications for stock returns and cash flow dynamics are quantitatively consistent with the data.  相似文献   

15.
Measuring Value Relevance in a (Possibly) Inefficient Market   总被引:4,自引:0,他引:4  
An interesting question in assessing value relevance of accounting variables is whether measures of value relevance are materially affected by market inefficiencies. We explore this question in two steps: First, we analytically examine the impact of market inefficiencies on the estimation of coefficients in value relevance regressions and derive a procedure that corrects potential biases caused by such inefficiencies. The procedure adjusts contemporaneous stock prices for future risk adjusted price changes, and yields value relevance coefficient estimates that capture both contemporaneous and delayed market reactions. Second, we apply this procedure to three types of studies that have attracted much attention in the accounting literature: 1) the value relevance of earnings and book values; 2) the value relevance of residual income value estimates; and 3) the value relevance of accruals and cash flows. We compare coefficient estimates obtained from conventional value relevance regressions with those from regressions employing our adjustment procedure, and find statistically significant differences in both level and return regression coefficient estimates. The magnitude of differences in coefficient estimates for return regressions is large enough to affect economic inferences. We find that coefficients of lagged price deflated residual income value estimates move significantly closer toward a predicted value of one implying a meaningful reduction of bias. Last, we find that cash flows now have significantly larger coefficient estimates than accruals consistent with their greater persistence.  相似文献   

16.
The purpose of this article is to examine prices on land and REIT shares for possible evidence of deviations from market fundamentals, the underlying economic forces. Models of market fundamentals are developed from the intertemporal capital asset pricing model so that risk aversion and a stochastic investment opportunity set can be incorporated in the analysis. The approach in this article is to compare ex post values of actual discounted cash flows with prices and to test whether the price series are unbiased predictors of the future discounted cash flows. Several tests of the relationship are presented, and the results suggest that prices of real estate investment trusts and prices of farm land do not always reflect fundamental value.  相似文献   

17.
This paper examines the role of certain fair value accounting (FVA) outcomes in compensation of US bank CEOs. The use of FVA in compensation invites an agency cost—the clawback problem—if cash compensation is based on unrealized profits that may reverse in the future. At the same time FVA may be a good measure of current managerial effort and so be cash compensated. We find evidence consistent with a positive link between CEO cash bonus and fair value (FV) valuation of trading assets, managed for short-term profit, as well as (amongst banks with limited trading exposure) a positive link between CEO pay and FV valuations of available for sale (AFS) assets. We find no evidence that trading income is incrementally compensation relevant, indicating that compensation committees avoided the clawback problem for unrealized trading gains. The paper also provides evidence on the link between FVA outcomes and equity-based pay.  相似文献   

18.
In 2012, China implemented a green credit policy (GCP) that restricts bank credits to heavily polluting firms. Using a difference-in-differences research design, we find that polluting firms increased their cash reserves by 9.5% after the GCP's issuance relative to non-polluting firms. We also document that the GCP significantly reduces firms' access to bank finance but increases the value of cash. Cross-sectional analysis shows that the increase in cash holdings is more significant for firms with greater financial constraints, firms with more investment opportunities, and high-tech companies. Overall, our findings are consistent with a constraint explanation: when external financing is restricted, firms retain more cash to meet future investment needs.  相似文献   

19.
How do markets for debt cash flow rights, with and without accompanying control rights, affect the efficiency of lending? A bank makes a loan, learns if it needs monitoring, and then decides whether to lay off credit risk. The bank can transfer credit risk by either selling the loan or buying a credit default swap (CDS). With a CDS, the originating bank retains the loan's control rights; with loan sales, control rights pass to the loan buyer. Credit risk transfer leads to excessive monitoring of riskier credits and insufficient monitoring of safer credits. Increases in banks' cost of equity capital exacerbate these effects. For riskier credits, loan sales typically dominate CDS but not for safer credits. Once repeated lending and consequent reputation concerns are modeled, although CDSs remain dominated by loan sales for riskier credits, for safer credits they can dominate loan sales, supporting better monitoring (albeit to a limited extent) while allowing efficient risk sharing. Restrictions on the bank's ability to sell the loan expand the range in which CDSs are used and monitoring is too low.  相似文献   

20.
Electronic voting in shareholder meetings facilitates shareholders' direct monitoring by reducing the cost of attending the meetings. This study investigates how adopting electronic voting in shareholder meetings affects the market value of cash holdings. We document that the value of cash holdings is higher for firms adopting electronic voting than for non-adopting firms, especially for firms with large minority ownership and free cash flows. The increased value of cash is attributable to firms engaging in investments that are more value relevant. Collectively, the findings suggest that shareholders perceive corporate governance as strengthened with the adoption of electronic voting. This study contributes to the literature by providing initial empirical evidence on the benefits of electronic voting.  相似文献   

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