Corporate Cash Policy and How to Manage it with Stock Repurchases

At the end of 2004 total U.S. corporate cash holdings reached an all‐time high of just under $2 trillion—an amount equal to roughly 15% of the total U.S. GDP. And during the past 25 years, average cash holdings have jumped from 10% to 23% of total corporate assets. But at the same time their levels of cash have risen, U.S. companies have paid out dramatically increasing amounts of cash to buy back shares. This article addresses the following questions: What accounts for the dramatic increase in the average level of corporate cash holdings since 1980? And why do some companies keep so much cash (with one fourth of U.S. firms holding cash amounting to at least 36% of total assets) while others have so little (with another quarter having less than 3%)? Why do companies pay out excess cash in the form of stock repurchases (rather than, say, dividends), and what explains the significant increase in repurchases (both in absolute terms and relative to dividends) over time? The author begins by arguing that cash reserves provide companies with a buffer against possible shortfalls in operating profits—one that, especially during periods of financial trouble, can be used to avoid financial distress or provide funding for promising projects that might otherwise have to be put off. Such buffers are particularly valuable in the case of smaller, riskier companies with lots of growth opportunities and limited access to capital markets. And the dramatic increase in corporate cash holdings between 1980 and the present can be attributed mainly to an increase in the risk of publicly traded companies—an increase in risk that reflects in part a general increase in competition, but also a notable change over time in the kinds of companies (smaller, newer, less profitable, non‐dividend paying firms) that have chosen to go public. At the other end of the corporate spectrum are large, relatively mature companies with limited growth opportunities. Although such companies tend to produce considerable free cash flow, they also tend to retain relatively small amounts of cash (as a percentage of total assets), in part because of shareholder concern about the corporate “free cash flow problem”—the well‐documented tendency of such companies to destroy value through overpriced (often diversifying) acquisitions and other misguided attempts to pursue growth at the expense of profitability. For companies with highly predictable earnings and investment plans, dividends provide one means of addressing the free cash flow problem. But for companies with more variable earnings and less predictable reinvestment, open‐market stock repurchases provide a more flexible means of distributing cash to shareholders. Unlike the corporate “commitment” implied by dividend payments, an open market stock repurchase program creates what amounts to an option but not an obligation to distribute funds. The value of such flexibility, which increases during periods of increased risk and uncertainty, explains much of the apparent substitution of repurchases for dividends in recent years.     

More preventive care, and fewer emergency room visits and prescription drugs--health care utilization in a consumer-driven health plan

Although consumer-driven health plans (CDHPs) have grown dramatically, the question of whether CDHPs have reduced health care costs has not been answered definitively. This article presents what the authors believe to be the first study to analyze a large sample of claims data and to look in detail at different types of utilization among enrollees in a CDHP and those in a traditional comprehensive major medical (CMM) plan. After adjusting for the finding that CDHP enrollees are both younger and healthier than those in CMM plans, the authors found that CDHP enrollees show no consistent or significant utilization differences for measures over which consumers have little control (e.g., inpatient stays); lower utilization for measures over which consumers have greater control (e.g., emergency room visits); and higher utilization of preventive services.     

Expert opinion and probabilistic volcanic risk assessment

We present data from an international survey of scientists working at volcanic observatories concerning eruption likelihoods. The scientists were asked a range of questions using different types of phrasing. The data suggest that the phrasing of questions affects the ways in which probabilities are estimated. In total, 71% of respondents (N = 70) exhibited some form of inconsistency in their answers between and/or within different question formats. The data also allow for an analysis of the use of scaling in probabilistic assessment, and the use of quantitative versus verbal risk measurements. However, some respondents were uncomfortable with providing any numerical probability estimate, perhaps suggesting that they considered the uncertainty too high for meaningful judgements to be made.     

Using meta‐analytic structural equation modeling to advance strategic management research: Guidelines and an empirical illustration via the strategic leadership‐performance relationship

This paper demonstrates how meta‐analysis can be combined with structural equation modeling (MASEM) to address new questions in strategic management research. We review this integration, describe its implementation, and compare findings from bivariate meta‐analyses, a direct‐effect structural equations model, and two mediating frameworks using data on the strategic leadership and performance relationship. Results drawn from 208 articles that collectively included data on 495,638 observations demonstrate the new insights available from MASEM while also suggesting a revision to conventional thinking on strategic leadership. Whereas some theories posit that boards of directors influence firm performance through monitoring and disciplining the top management team, MASEM provides more support for the view that boards mediate the top management teams' decisions. Implications for applying MASEM in strategic management are offered. Copyright © 2014 John Wiley & Sons, Ltd.     

Chinese economy in the new era

The “new era”, a term introduced by President Xi Jinping, may also be identified as the Xi era, during which China will be transformed from a moderately well‐off to a strong and wealthy nation. In the new era, the Chinese Government will deepen economic reform, widen economic opening and enhance the quality of economic growth. / Our projections show that by 2020, Chinese real GDP per capita, in 2017 prices, will exceed US$10,000, an economic development milestone. By 2031, Chinese real GDP will surpass US real GDP (US$29.4 trillion vs US$29.3 trillion), making China the largest economy in the world. However, Chinese real GDP per capita will still lag behind the US significantly, amounting to only one‐quarter of that of the United States. By 2050, Chinese real GDP will reach US$82.6 trillion, compared to US$51.4 trillion for the United States. However, in terms of real GDP per capita, China will still lag significantly behind, at US$53,000, slightly less than the current level of US real GDP per capita, compared to US$134,000 for the United States.     

Is there a role for uncertainty in forecasting output growth in OECD countries? Evidence from a time-varying parameter-panel vector autoregressive model

This paper uses a time-varying parameter-panel vector autoregressive (TVP-PVAR) model to analyze the role played by domestic and US news-based measures of uncertainty in forecasting the growth of industrial production of 12 Organisation for Economic Co-operation and Development (OECD) countries. Based on a monthly out-of-sample period of 2009:06 to 2017:05, given an in-sample of 2003:03 to 2009:05, there are only 46% of cases where domestic uncertainty can improve the forecast of output growth relative to a baseline monetary TVP-PVAR model, which includes inflation, interest rate and nominal exchange rate growth, besides output growth. Moreover, including US uncertainty does not necessarily improve the forecasting performance of output growth from the TVP-PVAR model which includes only the domestic uncertainty along with the baseline variables. So, in general, while uncertainty is important in predicting the future path of output growth in the 12 advanced economies considered, a forecaster can do better in majority of the instances by just considering the information from standard macroeconomic variables.     

Consumers' Trust in a Brand and the Link to Brand Loyalty

Brands are important in the consumer market. They are the interface between consumers and the company, and consumers may develop loyalty to brands. This study proposes that trust in a brand is important and is a key factor in the development of brand loyalty. Factors hypothesized to influence trust in a brand include a number of brand characteristics, company characteristics and consumer-brand characteristics. Respondents representing a broad spectrum of Singapore consumers were surveyed. The findings reveal that brand characteristics are relatively more important in their effects on a consumer's trust in a brand. The results also show that trust in a brand is positively related to brand loyalty. Marketers should, therefore, take careful consideration of brand factors in the development of trust in a brand.     

Corporate political strategies and firm performance: indications of firm‐specific benefits from personal service in the U.S. government

Firms employ a variety of political strategies (e.g., lobbying, contributions) in an attempt to gain influence or access to the public policy process. A variety of benefits may accrue to firms that are successful in creating a linkage with the government: information, access, influence, reduced uncertainty and transaction costs, etc. However, the direct benefits of such strategies are difficult to observe. One political strategy is studied here—personal service (having a firm representative serve in a political capacity). Event‐study methodology results show that such linkages with the government positively affect firm value. These findings indicate that firm‐specific benefits may result from political strategies. Copyright © 1999 John Wiley & Sons, Ltd.     

You should know better! Do health students have different risk attitudes to unplanned pregnancy and sexually transmitted diseases?

Because healthcare professionals are in the best position to assess, assist and educate those participating in risky sexual behaviour, understanding if (and how) their risk attitudes differ from the wider population is of vital importance. In this study, we explore university health students’ risk attitudes towards unplanned pregnancy and sexually transmitted diseases (STDs). We examine whether university students pursuing health-related degrees, who hypothetically should have more exposure to and understanding of the risks associated with unplanned pregnancy and STD, have more risk averse attitudes to sexual behaviour. We find that health students’ sexual attitudes are significantly more risk averse than those of their nonhealth peers in relation to STDs but not unplanned pregnancy. In line with previous research, age and no previous sexual history (virginity) appear to increase risk-averse attitudes to both unplanned pregnancy and STDs. Moreover, males and singles are more risk seeking in their sexual attitudes. These findings suggest that, because unplanned pregnancy and STDs are ongoing global issues, further research is warranted into the risk attitudes of those healthcare professionals most able to provide education and support for individuals participating in risky sexual behaviour.