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Costly External Equity
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Book Synopsis Costly External Equity by : Dongmei Li
Download or read book Costly External Equity written by Dongmei Li and published by . This book was released on 2008 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document that the value, net stock issues, investment, and asset growth anomalies tend to be stronger in financially more constrained firms than in less constrained firms. This effect of financial constraints is distinct from that of financial distress on anomalies. Intuitively, costly external finance makes marginal costs of investment more sensitive to investment in more constrained firms, giving rise to a stronger negative correlation between investment and the discount rate.
Book Synopsis External Equity Financing Shocks, Financial Flows, and Asset Prices by : Frederico Belo
Download or read book External Equity Financing Shocks, Financial Flows, and Asset Prices written by Frederico Belo and published by . This book was released on 2014 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: The ability of corporations to finance its operations by issuing new equity varies with macroeconomic conditions, because the time varying macroeconomic conditions affect investors' (or workers') willingness to pay for new equity. We document that an empirical proxy of the shocks to the cost of equity issuance captures systematic risk in the economy, even controlling for the impact of aggregate productivity (or stock market) shocks. Exposure to this shock helps price the cross section of stock returns including book-to-market, size, investment, debt growth, and issuance portfolios. We then propose a dynamic investment-based model that features an aggregate shock to the firms' cost of external equity issuance, and a collateral constraint. Our central finding is that time-varying external financing costs are important for the model to quantitatively capture the joint dynamics of firms' real quantities, financing flows, and asset prices. Furthermore, the model also replicates the failure of the unconditional CAPM in pricing the cross-sectional expected returns.
Book Synopsis Beyond Investment-Cash Flow Sensitivities by : Chris Hennessy
Download or read book Beyond Investment-Cash Flow Sensitivities written by Chris Hennessy and published by . This book was released on 2006 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates costs of external finance, applying indirect inference to a dynamic structural model where the corporation endogenously chooses investment, distributions, lever ageand default. The corporation faces double taxation, costly state verification indebt markets, and linear-quadratic costs of external equity. Consistent with direct evidence on under writer fee schedules, behavior is best explained by rising marginal costs of external equity, starting at 3.9%. Contrary to the notion that corporations are debt conservative, leverage is consistent with small (12.2%) bankruptcy costs. Investment-cash flow sensitivities are not a sufficient statistic for financing costs. The cash flow coefficient decreases in external equity costs and increases in bankruptcy costs. When the model is simulated using our parameter estimates, the cash flow coefficient across Fazzari, Hubbard, and Petersen's dividend classes is U-shaped. The difference between cash flow coefficients across dividend classes actually decreases as costs are increased.
Book Synopsis Segmented Capital Markets and the Cost of External Finance by : Matthew T. Billett
Download or read book Segmented Capital Markets and the Cost of External Finance written by Matthew T. Billett and published by . This book was released on 2014 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Segmented capital markets may allow firms to reduce their cost of capital by increasing their reliance on the relatively cheaper market. However, this potential benefit is attenuated by the firm's costs of accessing the markets. This paper models a firm with access to two segmented capital markets, and illustrates howhigher costs of accessing either market lead to lower firm values. While access costs clearly impact the firm's ability to arbitrage the two markets, we focus on a more subtle effect. Access to multiple markets may reduce the value loss arising from uncertainty in internally generated funds. The model also suggests a methodology for measuring access costs to segmented markets, allowing us to test our model on a sample of large banking firms. We label banks with relatively lower costs of accessing the two markets as more quot;financially flexible.quot; Our two key findings are 1) banks with greater financial flexibility have greater value, and 2) banks with greater financial flexibility devote a smaller percentage of assets to cash and marketable securities, consistent with the notion that financial flexibility reduces the sensitivity of firm profits to internal wealth shocks, thus reducing the firm's need to carry financial slack.
Book Synopsis The Default Rate and Price of Capital in a Costly External Finance Model by : Juan Pablo Medina Guzman
Download or read book The Default Rate and Price of Capital in a Costly External Finance Model written by Juan Pablo Medina Guzman and published by . This book was released on 2004 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Internal Versus External Equity Funding Sources and Earnings Response Coefficients by : Chul W. Park
Download or read book Internal Versus External Equity Funding Sources and Earnings Response Coefficients written by Chul W. Park and published by . This book was released on 1997 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Under the assumption that capital markets are imperfect due to transactions costs and investor-manager information asymmetries, internally generated funds should be less costly than funds raised by issuing shares (Myers and Majluf 1984). This suggests that the mix of firms' sources of shareholders equity should affect the discount rates the market applies to unexpected earnings. In particular, the discount rate should be lower for firms using a higher proportion of internal funds relative to externally obtained equity, and, accordingly, such firms should have larger earnings response coefficients. Furthermore, this effect should be magnified for high growth firms where the disparity between inside information and publicly available information is greatest (i.e., high growth firms have a larger portfolio of positive NPV projects to fund and can reduce their cost of equity capital at a greater rate by using internally generated funds). We test these predictions using a sample of 14,955 firm-year observations. The results of pooled regressions and annual cross-sectional regressions support both predictions after controlling for other determinants of earnings response coefficients.
Book Synopsis Costly External Finance by : Dongmei Li
Download or read book Costly External Finance written by Dongmei Li and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a frictionless world, investment is perfectly elastic to changes in the discount rate. With financial frictions, investment is less elastic, meaning that a given magnitude of change in investment is associated with a higher magnitude of change in the discount rate. Equivalently, investment is a more powerful predictor of future stock returns. Consistent with this prediction, we document that the asset growth, external finance, and accrual anomalies in the cross-section of stock returns are much stronger in financially more constrained firms than in financially less constrained firms. Further tests show that this effect of financial constraints is distinct from the effect of financial distress and the effect of limits of arbitrage on the magnitude of the anomalies.
Book Synopsis Financing Frictions and the Substitution Between Internal and External Funds by : Heitor Almeida
Download or read book Financing Frictions and the Substitution Between Internal and External Funds written by Heitor Almeida and published by . This book was released on 2008 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is ample empirical evidence of a negative relation between internal funds (profitability) and the demand for external funds (debt issuance). This negative relation has been interpreted as evidence for external financing costs arising from capital market frictions such as asymmetric information (e.g., the pecking order theory). We show, however, that the negative effect of internal funds on the demand for external financing is concentrated among firms that are QTR{em}{least likely} to face high costs of external finance (firms that distribute large amounts of dividends, that are large, and whose bonds and commercial papers are rated). For firms in the other end of the spectrum (low payout, small, and unrated), external financing is insensitive to innovations to internal funds. These cross-firm differences hold separately for debt and outside equity financing, and are magnified in the aftermath of macroeconomic movements that tighten financial constraints. We argue that the greater degree of complementarity between internal funds and external finance for constrained firms is a consequence of the interdependence of their financing and investment decisions. Our findings suggest that the negative relation between internal funds and external financing should not be interpreted as evidence for external financing costs.
Book Synopsis The Costs of Outside Equity Control by : C. Edward Fee
Download or read book The Costs of Outside Equity Control written by C. Edward Fee and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent theoretical work suggests that outside equity monitoring and control come with costs as well as benefits, especially in small, entrepreneurial firms. These costs arise when outside investors undervalue any private benefits of control that may accrue to an entrepreneur. The resulting hold-up problems may reduce the entrepreneur's incentives to invest personal effort into the firm. This paper investigates the financing of individual motion pictures in light of a tradeoff between better monitoring and better creative effort. Filmmakers have the choice of using studio funds (and giving up control) or of obtaining independent financing (and retaining control.) Consistent with arguments in the literature on investor control, I find that independent motion picture finance is more common when a filmmaker's private artistic stake in the film is high and for films requiring a high level of creative effort. This paper also investigates the role of several other factors, the most important of which is reputation, in financial contracting. I find that a filmmaker's commercial reputation affects the amount of resources independent investors, without control, are willing to provide. In contrast, studio investors, who maintain high levels of monitoring and control, appear relatively less concerned about reputation.
Book Synopsis Dynamic Models and Structural Estimation in Corporate Finance by : Ilya A. Strebulaev
Download or read book Dynamic Models and Structural Estimation in Corporate Finance written by Ilya A. Strebulaev and published by Now Pub. This book was released on 2012-10-02 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt: The goals of this monograph are to explain the models and techniques and make it more accessible, introduce the main strands of this literature, and explain how dynamic models can be taken to the data and estimated, providing a guide to 3 methodologies: generalized method of moments, simulated method of moments, and maximum simulated likelihood.
Book Synopsis Taxes and Financing Decisions by : Jonathan Lewellen
Download or read book Taxes and Financing Decisions written by Jonathan Lewellen and published by . This book was released on 2005 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the tax effects of financing decisions. We show that subtle, often unstated, tax assumptions play a key role in many capital structure theories, including in the models of Miller (1977), Auerbach (1979), and Hennessy and Whited (2004). Our central thesis is that, under quite general conditions, the tax costs of internal equity are less than the tax costs of external equity. It follows that optimal leverage is a function of internally generated cashflows, that debt ratios can wander around without a specific target, and that a firm's cost of capital depends on its mix of internal and external finance, not just its mix of debt and equity. The trade-off between debt, retained earnings, and external equity depends critically on the tax basis of investors' shares relative to current price. We estimate how the tax basis varies cross-sectionally and through time for a large sample of U.S. firms.
Book Synopsis The Cost of External Common Stock Equity Capital for Small Business by : LeRoy George Faerber
Download or read book The Cost of External Common Stock Equity Capital for Small Business written by LeRoy George Faerber and published by . This book was released on 1964 with total page 300 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asset Prices and Business Cycles with Costly External Finance by : Joao F. Gomes
Download or read book Asset Prices and Business Cycles with Costly External Finance written by Joao F. Gomes and published by . This book was released on 2011 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper asks whether the asset pricing fluctuations induced by the presence of costly external finance are empirically plausible. To accomplish this, we incorporate costly external finance into a dynamic stochastic general equilibrium model and explore its implications for the properties of the returns on the key financial assets, such as stocks, bonds and risky loans. We find that the mean and volatility of the equity premium is significantly higher than in comparable adjustment cost models. However, we show that these results require a procyclical financing premium, a property that seems at odds with the data.
Book Synopsis Default Rate and Price of Capital in a Costly External Finance Model by : Juan Pablo Medina
Download or read book Default Rate and Price of Capital in a Costly External Finance Model written by Juan Pablo Medina and published by . This book was released on 2008 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial frictions have been used to enrich mechanisms transmission in macroeconomics. However, the predictions of real business cycle models of costly external finance imply a procyclical default rate, external premium and relative price of capital which seems at odds with the data. In this article, we include technology shocks that affect the average productivity and idiosyncratic risk of capital producers in a standard costly external finance model. These elements enhance the model to deliver a countercyclical default rate, external finance and relative price of capital premium which are more consistent with the data and contrary to the results obtained with a sector-neutral productivity shock. Intuitively, if the entrepreneurs' investment projects become more productive in average, the relative price of capital and the default rate fall while investment and output increase. Using data on the relative price of capital, we perform a calibration of this type of shocks which highlights its business-cycle relevante.
Book Synopsis External Equity Financing of Production Agriculture by : Laurence M. Crane
Download or read book External Equity Financing of Production Agriculture written by Laurence M. Crane and published by . This book was released on 1992 with total page 434 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Simulation-based Econometric Methods by : Christian Gouriéroux
Download or read book Simulation-based Econometric Methods written by Christian Gouriéroux and published by OUP Oxford. This book was released on 1997-01-09 with total page 190 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book introduces a new generation of statistical econometrics. After linear models leading to analytical expressions for estimators, and non-linear models using numerical optimization algorithms, the availability of high- speed computing has enabled econometricians to consider econometric models without simple analytical expressions. The previous difficulties presented by the presence of integrals of large dimensions in the probability density functions or in the moments can be circumvented by a simulation-based approach. After a brief survey of classical parametric and semi-parametric non-linear estimation methods and a description of problems in which criterion functions contain integrals, the authors present a general form of the model where it is possible to simulate the observations. They then move to calibration problems and the simulated analogue of the method of moments, before considering simulated versions of maximum likelihood, pseudo-maximum likelihood, or non-linear least squares. The general principle of indirect inference is presented and is then applied to limited dependent variable models and to financial series.
Book Synopsis Financial Management; Principles and Practice by :
Download or read book Financial Management; Principles and Practice written by and published by Freeload Press, Inc.. This book was released on with total page 657 pages. Available in PDF, EPUB and Kindle. Book excerpt:
