It is not a flat world after all: Tax repatriation costs and cash value

US corporations have accumulated record‐high amounts of cash, and most of it is trapped in foreign accounts. This study tests the hypothesis that the marginal value of cash decreases in the presence of tax repatriation costs, as these costs are a strong indication that part of the cash is trapped abroad. Cash abroad is not readily available to the company because it is subject to an additional layer of tax before it can be used or distributed. Moreover, uncertainty surrounds the potential use of foreign cash, and research documents that firms holding high amounts of cash abroad are likely to invest in negative net present value activities. Finally, possible changes in tax regulation are an additional source of uncertainty. Consequently, foreign cash should be worth less than domestic cash. Using a large sample of US firms drawn from COMPUSTAT during the 1991–2012 period, the analysis suggests that shareholders value an extra dollar of cash at $1.086. However, this result changes dramatically when the change in cash is interacted with the tax cost of repatriating the earnings. That is, the marginal value of cash decreases significantly in the presence of tax repatriation costs, and shareholders discount cash when it is likely to be held abroad. This study contributes to the literature on cash holding by investigating whether tax repatriation costs affect the value of corporate cash. Moreover, the findings show that there are important economic consequences linked to the phenomenon of cash accumulation in foreign countries and therefore provide regulators with a sound foundation on which to take additional actions to require more disclosure of and transparency in the actual location of firms’ cash holdings.     

Free cash flow, debt-monitoring and managers' LIFO/FIFO policy choice

This paper explores the explanatory power of Jensen's free cash flow hypothesis in managers' choice of LIFO versus FIFO. The association between FCF, and choice of inventory methods is based on the assumption that there is a potential conflict of interest between managers and shareholders when LIFO is the tax minimization method and that non-value-maximizing managers of firms with the FCF problem have incentives to choose FIFO, an income increasing method, in order to increase their compensation. However, since debt can act as a monitoring device and mitigate the agency problems of FCF, managers of firms with high FCF and high debt are less likely to choose FIFO than managers of firms with high FCF and low debt. The evidence is consistent with this expectation.     

The Wealth Effect of Domestic Joint Ventures: Evidence from Taiwan

This study presents important international evidence by examining the wealth effect of domestic joint ventures by Taiwanese firms. In opposite to United States evidence, we find that announcements of domestic joint ventures by Taiwanese firms are, on average, associated with significantly negative abnormal stock returns. We also find that the stock market response to announced domestic joint ventures is significantly positively related to the announcing firms' investment opportunities, size of investment and debt ratio, and is significantly negatively related to the business relatedness variable. In contrast, free cash flow, firm size, relative firm size and managerial ownership are found to have no significant power in explaining the market response. Our results support the investment opportunities, synergy and complementarity hypotheses as well as a broad interpretation of the free cash flow hypothesis, but reject the absolute size, relative size and alignment-of-interests hypotheses. This study makes valuable contributions to the literature by providing the first direct evidence on the role of investment opportunities, synergy and alignment-of-interests in explaining the wealth effect of domestic joint ventures     

Value of Multinationality: Internalization, Managerial Self-interest, and Managerial Compensation

In this paper, we examine the impact of managerial self-interest on the value of multinationality. Since agency theory also suggests that a divergence between the interests of managers and shareholders can be aligned by effective managerial incentive, we also examine the effect of managerial compensation on the value of multinationality. Our results show that for high- Q (Tobin's Q > 1 ) firms, investors do not associate the spending of free cash flow on multinationality with the problem of overinvestments. For high- Q firms, it is also found that the value of multinationality can be enhanced by effective managerial incentives. For low- Q firms (Tobin's Q < 1 ), it is found that the concern of managerial self-interest overwhelms the benefits of internalization, making multinationality a value-decreasing event. For low- Q firms, managerial compensation is also ineffective in promoting value-enhancing foreign direct investments.     

资金合理流动:理财目标的现实考察

本文通过对企业目标的考察,认为以企业的社会使命为企业的目标才能使企业有所发展,而要做到这一点,必须以资金合理流动作为企业财务目标,才能使企业的长久目标有可能实现。资金合理流动作为理想企业目标与现实存在的结合就成为了必然。     

Aggregate Dividend Behavior and Permanent Earnings Hypothesis

The study examines the aggregate dividend behavior of U.S. corporations based on the permanent earnings hypothesis. Using annual data of aggregate earnings and dividends from 1871–1993, I find that although managers change dividends proportional to permanent earnings changes, they make revisions with a larger percentage change in dividends than in permanent earnings. The results from the post‐war data show that firms follow a partial adjustment policy with a long‐term dividend payout target in mind and make revisions with a delay. The quarterly data analysis yields results similar to those of the post‐war annual data.     

西方现代股利政策理论及实证研究回顾

本文对西方现代公司股利政策方面的理论和实证研究进行了一个综合性的回顾和分析。其中包括主流的股利行为模型、股利的信息内涵、代理成本、追随者效应,也包括国内研究中较少涉及的债务约束、声誉学说、成长机会和交易成本问题,以期对国内相对落后的股利政策研究和随意性较强的股利政策制定带来一定的借鉴意义。     

Optimal investment with fixed financing costs

Models with a premium on external finance produce counterfactual predictions about liquidity management. We address this shortcoming by introducing a fixed cost of increasing external finance into an otherwise standard investment/financing problem. This additional financial friction is well-motivated by case studies and our analysis shows that it generates more realistic predictions about liquidity management: firms hold external finance and idle cash simultaneously, and may invest an additional dollar of cash flow in liquidity rather than repaying external funds or investing in productive capital. In addition to better fitting the stylized facts about the time-series and cross-sectional pattern of liquidity holding, these results may help shed light on the fragility of estimates of investment–cash flow sensitivities.     

Dividend Changes and Future Earnings Performance： Evidence from UK Market

This paper investigates the dividend signaling hypothesis, described here as the relationship between dividend changes and future earnings performance. We find that managers pursue different patterns in UK from that in US when making dividend policy. A positive and significant association between dividend changes and the growth of future earnings is observed in the immediately following year after dividend announced There isn＇t significant link in the longer future. These phenomena are caused by managers＇ near-eyesight in UK market. In addition, an interesting finding is that dividend decreases have larger negative influence on earnings growth than positive impact on earnings prospects of dividend increases. This is consistent with the infrequent occurrence of dividend reduction.