Naomi E. Feldman, Laura Kawano, Elena S. Patel, N. Rao, Michael Stevens, J. Edgerton
Using data from U.S. corporate tax returns, which provide a sample representative of the universe of U.S. corporations, we investigate the differential investment propensities of public and private firms. Re-weighting the data to generate observationally comparable sets of public and private firms, we find robust evidence that public firms invest more overall, particularly in R&D. Exploiting within-firm variation in public status, we find that firms dedicate more of their investment to R&D following IPO, and reduce these investments upon going private. Our findings suggest that public stock markets facilitate greater investment, on average, particularly in risky, uncollateralized investments.
{"title":"The Long and the Short of It: Do Public and Private Firms Invest Differently?","authors":"Naomi E. Feldman, Laura Kawano, Elena S. Patel, N. Rao, Michael Stevens, J. Edgerton","doi":"10.2139/ssrn.3239663","DOIUrl":"https://doi.org/10.2139/ssrn.3239663","url":null,"abstract":"Using data from U.S. corporate tax returns, which provide a sample representative of the universe of U.S. corporations, we investigate the differential investment propensities of public and private firms. Re-weighting the data to generate observationally comparable sets of public and private firms, we find robust evidence that public firms invest more overall, particularly in R&D. Exploiting within-firm variation in public status, we find that firms dedicate more of their investment to R&D following IPO, and reduce these investments upon going private. Our findings suggest that public stock markets facilitate greater investment, on average, particularly in risky, uncollateralized investments.","PeriodicalId":236717,"journal":{"name":"ERN: Other Microeconomics: Intertemporal Firm Choice & Growth","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132159434","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Prior literature shows that firms are less likely to pay dividends to preserve financial flexibility when facing greater competitive threats from rival firms in product markets. However, the real effects of dividend policy on product market outcomes are not widely understood. This paper investigates the causal effects of dividend policy on sales growth in product markets. Exploiting the 2003 dividend tax cut as the exogenous shock to dividend policy and the cross-firm variation in the tax status of firms’ largest institutional shareholders, we find that firms’ dividend increases induced by the tax cut reduced their sales growth in product markets in years following the tax cut. Further, those firms exhibited slower growth in investment activities after the tax cut. A battery of robustness checks supports our causal interpretation that dividends reduce firms’ financial flexibility to deploy funds for investing activities, resulting in slower sales growth in product markets.
{"title":"Does Dividend Policy Affect Sales Growth in Product Markets?: Evidence from a Quasi-Natural Experiment","authors":"A. Chino, Joon-ho Kim","doi":"10.2139/ssrn.3094798","DOIUrl":"https://doi.org/10.2139/ssrn.3094798","url":null,"abstract":"Prior literature shows that firms are less likely to pay dividends to preserve financial flexibility when facing greater competitive threats from rival firms in product markets. However, the real effects of dividend policy on product market outcomes are not widely understood. This paper investigates the causal effects of dividend policy on sales growth in product markets. Exploiting the 2003 dividend tax cut as the exogenous shock to dividend policy and the cross-firm variation in the tax status of firms’ largest institutional shareholders, we find that firms’ dividend increases induced by the tax cut reduced their sales growth in product markets in years following the tax cut. Further, those firms exhibited slower growth in investment activities after the tax cut. A battery of robustness checks supports our causal interpretation that dividends reduce firms’ financial flexibility to deploy funds for investing activities, resulting in slower sales growth in product markets.","PeriodicalId":236717,"journal":{"name":"ERN: Other Microeconomics: Intertemporal Firm Choice & Growth","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-08-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128991417","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study provides evidence that the use of conservative accounting in debt contracting depends on the enforceability of the contract. To test the effect of debt contract enforcement on borrowers' timely loss recognition, we exploit the staggered introduction of enhanced debt contract enforcement in Indian states as a natural experiment, where the implementation of the enforcement is exogenous to the accounting choices and borrowing behavior of firms. The main results show that enhanced enforcement has a significant positive effect on the timeliness of loss recognition of borrowing firms. We find that the effect is strongest for firms that increased their overall borrowing and for firms with high levels of tangible assets, consistent with a collateral‐based explanation. This study also provides causal evidence that firms adopt conservative accounting due to lenders' demand.
{"title":"Debt Contract Enforcement and Conservatism: Evidence from a Natural Experiment","authors":"Cyrus Aghamolla, Nan Li","doi":"10.2139/ssrn.2661033","DOIUrl":"https://doi.org/10.2139/ssrn.2661033","url":null,"abstract":"This study provides evidence that the use of conservative accounting in debt contracting depends on the enforceability of the contract. To test the effect of debt contract enforcement on borrowers' timely loss recognition, we exploit the staggered introduction of enhanced debt contract enforcement in Indian states as a natural experiment, where the implementation of the enforcement is exogenous to the accounting choices and borrowing behavior of firms. The main results show that enhanced enforcement has a significant positive effect on the timeliness of loss recognition of borrowing firms. We find that the effect is strongest for firms that increased their overall borrowing and for firms with high levels of tangible assets, consistent with a collateral‐based explanation. This study also provides causal evidence that firms adopt conservative accounting due to lenders' demand.","PeriodicalId":236717,"journal":{"name":"ERN: Other Microeconomics: Intertemporal Firm Choice & Growth","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-07-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129898140","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the association between firms’ financial constraints and potentially value- destroying financial restatements. How financial constraints affect managerial behavior has been labeled as a core issue in accounting and finance. Ex-ante, the nature of the relation between financial constraints and financial restatements is unclear and remains unexplored in the literature. We find that financially constrained firms are more prone to restate their financial statements. We examine two explanations for this relation. First, consistent with managerial opportunism, we find that among financially constrained firms, weaker firm performance, greater financial leverage, and greater informational complexity are associated with higher discretionary accruals and more restatements. Second, consistent with managerial signalling, we find that although firms with greater investment opportunities and financing needs have higher discretionary accruals, they are not associated with more restatements. These firms signal positive prospects through earnings management while avoiding GAAP violations that could trigger restatements. Finally, we find that a financial constraint measure based on textual analysis outperforms traditional metrics used in most prior research.
{"title":"Are Financially Constrained Firms More Prone to Financial Restatements?","authors":"R. M. Bowen, S. Dutta, P. Zhu","doi":"10.2139/ssrn.3211497","DOIUrl":"https://doi.org/10.2139/ssrn.3211497","url":null,"abstract":"We examine the association between firms’ financial constraints and potentially value- destroying financial restatements. How financial constraints affect managerial behavior has been labeled as a core issue in accounting and finance. Ex-ante, the nature of the relation between financial constraints and financial restatements is unclear and remains unexplored in the literature. We find that financially constrained firms are more prone to restate their financial statements. We examine two explanations for this relation. First, consistent with managerial opportunism, we find that among financially constrained firms, weaker firm performance, greater financial leverage, and greater informational complexity are associated with higher discretionary accruals and more restatements. Second, consistent with managerial signalling, we find that although firms with greater investment opportunities and financing needs have higher discretionary accruals, they are not associated with more restatements. These firms signal positive prospects through earnings management while avoiding GAAP violations that could trigger restatements. Finally, we find that a financial constraint measure based on textual analysis outperforms traditional metrics used in most prior research.","PeriodicalId":236717,"journal":{"name":"ERN: Other Microeconomics: Intertemporal Firm Choice & Growth","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127941469","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The study shows the efficiency of the dairy cooperative depending on the level of their current financial liquidity. Cooperatives were grouped according to the current liquidity ratio using quartiles methods and significance e test of the differences between the groups was conducted on the groups. Adopted to verify the hypothesis that dairy cooperatives with liquidity above the recommended standards of literature show highest efficiency adopted for verification. The most advantageous financial conditions were characterized by dairy cooperatives with liquidity above and within the limits recommended in the literature. This may be due to the fact that having adequate levels of liquidity may be in the form of cooperative farming more important than maximizing financial performance.
{"title":"Level of the Current Liquidity Ratio Versus Financial Efficiency of Dairy Cooperatives","authors":"M. Ganc","doi":"10.30858/ZER/92063","DOIUrl":"https://doi.org/10.30858/ZER/92063","url":null,"abstract":"The study shows the efficiency of the dairy cooperative depending on the level of their current financial liquidity. Cooperatives were grouped according to the current liquidity ratio using quartiles methods and significance e test of the differences between the groups was conducted on the groups. Adopted to verify the hypothesis that dairy cooperatives with liquidity above the recommended standards of literature show highest efficiency adopted for verification. The most advantageous financial conditions were characterized by dairy cooperatives with liquidity above and within the limits recommended in the literature. This may be due to the fact that having adequate levels of liquidity may be in the form of cooperative farming more important than maximizing financial performance.","PeriodicalId":236717,"journal":{"name":"ERN: Other Microeconomics: Intertemporal Firm Choice & Growth","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133996577","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Profitability is assessed relative to costs and expenses, and it is analyzed in comparison to assets to see how effective a company is in deploying assets to generate sales and eventually profits. The term return in the ROA ratio customarily refers to net profit or net income, the amount of earnings from sales after all costs, expenses and taxes. The more assets a company has amassed, the more sales and potentially more profits the company may generate. As economies of scale help lower costs and improve margins, return may grow at a faster rate than assets, ultimately increasing return on assets. Hence, this study attempted to investigate the influence of firm-specific factors and macro-economic factors affecting profitability of Anta Sport manufacturing company in China. This study employs time series regression analysis of Anta Sport manufacturing company in China from 2012 to 2016. The analysis shows that firm-specific factors (operating margin) and macro-economic factor (GDP) influence the profitability of the firms. This study suggest that the firms should manage their account receivable efficiently by establishing clear credit policy and incorporate more corporate governance elements such as transparency, accountability, fairness, and independence in the firms.
{"title":"Profitability Risk and Its Determinants: A Study of Anta Sport","authors":"S. fuzi","doi":"10.2139/ssrn.3182170","DOIUrl":"https://doi.org/10.2139/ssrn.3182170","url":null,"abstract":"Profitability is assessed relative to costs and expenses, and it is analyzed in comparison to assets to see how effective a company is in deploying assets to generate sales and eventually profits. The term return in the ROA ratio customarily refers to net profit or net income, the amount of earnings from sales after all costs, expenses and taxes. The more assets a company has amassed, the more sales and potentially more profits the company may generate. As economies of scale help lower costs and improve margins, return may grow at a faster rate than assets, ultimately increasing return on assets. Hence, this study attempted to investigate the influence of firm-specific factors and macro-economic factors affecting profitability of Anta Sport manufacturing company in China. This study employs time series regression analysis of Anta Sport manufacturing company in China from 2012 to 2016. The analysis shows that firm-specific factors (operating margin) and macro-economic factor (GDP) influence the profitability of the firms. This study suggest that the firms should manage their account receivable efficiently by establishing clear credit policy and incorporate more corporate governance elements such as transparency, accountability, fairness, and independence in the firms.","PeriodicalId":236717,"journal":{"name":"ERN: Other Microeconomics: Intertemporal Firm Choice & Growth","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-05-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134470988","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Liquidity risk management is an important aspect in an organisation. It is important for an organisation to manage liquidity risk efficiently. Hence, this study attempted to investigate the influence of firm-specific factors and macro-economic factors affecting liquidity risk of hotel industry in United Kingdom. This study employs time series regression analysis of hotel in United Kingdom from 2012 to 2016. The analysis shows that firm-specific factors (current ratio and corporate governance index score) and macro-economic factor (company’s beta, inflation rate, unemployment rate, and exchange rate) that influence the liquidity risk of the hotel. This study suggest that the firms should manage their account receivable efficiently by establishing clear credit policy and incorporate more corporate governance elements such as transparency, accountability, fairness, and independence in the firms.
{"title":"Liquidity Risk and Its Determinants: A Study on Hotel Industry in United Kingdom","authors":"Elia Syapikah","doi":"10.2139/ssrn.3181646","DOIUrl":"https://doi.org/10.2139/ssrn.3181646","url":null,"abstract":"Liquidity risk management is an important aspect in an organisation. It is important for an organisation to manage liquidity risk efficiently. Hence, this study attempted to investigate the influence of firm-specific factors and macro-economic factors affecting liquidity risk of hotel industry in United Kingdom. This study employs time series regression analysis of hotel in United Kingdom from 2012 to 2016. The analysis shows that firm-specific factors (current ratio and corporate governance index score) and macro-economic factor (company’s beta, inflation rate, unemployment rate, and exchange rate) that influence the liquidity risk of the hotel. This study suggest that the firms should manage their account receivable efficiently by establishing clear credit policy and incorporate more corporate governance elements such as transparency, accountability, fairness, and independence in the firms.","PeriodicalId":236717,"journal":{"name":"ERN: Other Microeconomics: Intertemporal Firm Choice & Growth","volume":"605 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-05-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116318327","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
ABSTRACT Liquidity risk management is an important aspect in the organisation. In order to avoid efficiency, it is important for an organisation to manage liquidity risk. Hence, this study attempted to investigate the influence of firm-specific factors and macro-economic factors affecting liquidity risk of oil and gas industry in Tatneft. This study employs time series analysis from 2012 to 2016. The analysis shows that firm-specific factors (average collection period and corporate governance index score) and macro-economic factor (company’s beta) influence the liquidity risk of the industry. This study suggest that the firms should manage their account receivable efficiently by establishing clear credit policy and incorporate more corporate governance elements such as transparency, accountability, fairness, and independence in the firms to make the company more efficient.
{"title":"'Liquidity Risk and Its Determinants': A Study on Oil and Gas Industry in Tatneft","authors":"E. Awin","doi":"10.2139/ssrn.3181622","DOIUrl":"https://doi.org/10.2139/ssrn.3181622","url":null,"abstract":"ABSTRACT Liquidity risk management is an important aspect in the organisation. In order to avoid efficiency, it is important for an organisation to manage liquidity risk. Hence, this study attempted to investigate the influence of firm-specific factors and macro-economic factors affecting liquidity risk of oil and gas industry in Tatneft. This study employs time series analysis from 2012 to 2016. The analysis shows that firm-specific factors (average collection period and corporate governance index score) and macro-economic factor (company’s beta) influence the liquidity risk of the industry. This study suggest that the firms should manage their account receivable efficiently by establishing clear credit policy and incorporate more corporate governance elements such as transparency, accountability, fairness, and independence in the firms to make the company more efficient.","PeriodicalId":236717,"journal":{"name":"ERN: Other Microeconomics: Intertemporal Firm Choice & Growth","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-04-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115606809","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Product platforms are assets that are shared by multiple products. We study the optimal investment in platform flexibility. Each platform type is characterized by its functionality that determines its R&D investment and unit production cost, as well as the customization cost to produce the end products from the platform. The firm can invest in a portfolio of specialized platforms that align with the functionalities of a specific product and flexible platforms that cover the functionalities of a product range at lower customization cost. We characterize the optimal platform portfolio strategy using an ex-ante investment versus ex-post production customization tradeoff curve and show comparative statics of these costs, demand forecast, and the decision maker’s regret and risk attitude. Flexible platforms provide operational hedging for risk-averse decision makers who thus should invest more than risk-neutral counterparts. In contrast to manufacturing flexibility, the regret of sub-optimal investments increases as demand is more negatively correlated.
{"title":"Platform Flexibility Strategies: R&D Investment versus Production Customization Tradeoff","authors":"M. V. D. Broeke, R. Boute, J. V. Mieghem","doi":"10.2139/ssrn.2974538","DOIUrl":"https://doi.org/10.2139/ssrn.2974538","url":null,"abstract":"Product platforms are assets that are shared by multiple products. We study the optimal investment in platform flexibility. Each platform type is characterized by its functionality that determines its R&D investment and unit production cost, as well as the customization cost to produce the end products from the platform. The firm can invest in a portfolio of specialized platforms that align with the functionalities of a specific product and flexible platforms that cover the functionalities of a product range at lower customization cost. We characterize the optimal platform portfolio strategy using an ex-ante investment versus ex-post production customization tradeoff curve and show comparative statics of these costs, demand forecast, and the decision maker’s regret and risk attitude. Flexible platforms provide operational hedging for risk-averse decision makers who thus should invest more than risk-neutral counterparts. In contrast to manufacturing flexibility, the regret of sub-optimal investments increases as demand is more negatively correlated.","PeriodicalId":236717,"journal":{"name":"ERN: Other Microeconomics: Intertemporal Firm Choice & Growth","volume":"22 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-03-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115883920","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study portfolio allocation in the international financial market when investors exhibit ambiguity aversion towards assets issued in foreign locations. Entrepreneurs located in each country have access to a risky technology and want to attract capital. We characterize contracts issued by firms in such an environment. Increases in the variance of the risky production process causes firms to increase the variable payment (equity) offered to investors. On the other hand, increases in investor ambiguity lead to less risk-sharing. Entrepreneurs located in countries with low levels of domestic wealth issue assets with a higher fixed payment and a lower risky payment. As a result, they are exposed to higher volatility per unit of consumption as they finance themselves relatively more through debt than equity. An increase in ambiguity or ambiguity aversion that characterizes crises may explain flight of capital to capital-abundant countries - dubbed sometimes as "flight to quality".
{"title":"Risk versus Ambiguity and International Security Design","authors":"Brian Hill, T. Michalski","doi":"10.2139/ssrn.2399390","DOIUrl":"https://doi.org/10.2139/ssrn.2399390","url":null,"abstract":"We study portfolio allocation in the international financial market when investors exhibit ambiguity aversion towards assets issued in foreign locations. Entrepreneurs located in each country have access to a risky technology and want to attract capital. We characterize contracts issued by firms in such an environment. Increases in the variance of the risky production process causes firms to increase the variable payment (equity) offered to investors. On the other hand, increases in investor ambiguity lead to less risk-sharing. Entrepreneurs located in countries with low levels of domestic wealth issue assets with a higher fixed payment and a lower risky payment. As a result, they are exposed to higher volatility per unit of consumption as they finance themselves relatively more through debt than equity. An increase in ambiguity or ambiguity aversion that characterizes crises may explain flight of capital to capital-abundant countries - dubbed sometimes as \"flight to quality\".","PeriodicalId":236717,"journal":{"name":"ERN: Other Microeconomics: Intertemporal Firm Choice & Growth","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-12-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121868766","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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