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Disappearing Investment Cash Flow Sensitivities
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Book Synopsis Disappearing Investment-Cash Flow Sensitivities by : Niclas Andrén
Download or read book Disappearing Investment-Cash Flow Sensitivities written by Niclas Andrén and published by . This book was released on 2017 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: According to a recent conjecture in the literature, earnings have become a poorer proxy for cash flow from operations over time. We find that since 1988, when cash flow statements started to be consistently reported in Compustat, the cash effectiveness of earnings has actually increased for a large sample of US manufacturing firms. This occurs despite the introduction of fair value accounting and increasing accounting accruals during the last three decades. The evidence suggests that this puzzle is explained by more efficient working capital management. Also contrary to the conjecture, using more comprehensive measures of cash flow does not restore the investment-cash flow sensitivity, which continues to be around 0.05 in more recent periods. We end by noting that the investment model used in the literature can be enhanced by including accruals, since it leads to a more precise estimation of cash flow.
Book Synopsis Investment-Cash Flow Sensitivity Cannot Be a Good Measure of Financial Constraints by : Huafeng (Jason) Chen
Download or read book Investment-Cash Flow Sensitivity Cannot Be a Good Measure of Financial Constraints written by Huafeng (Jason) Chen and published by . This book was released on 2011 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investment-cash flow sensitivity has declined and disappeared, even during the 2007-2009 credit crunch. If one believes that financial constraints have not disappeared, then investment-cash flow sensitivity cannot be a good measure of financial constraints. The decline and disappearance are robust to considerations of Ramp;D and cash reserves, and across groups of firms. The information content in cash flow regarding investment opportunities has declined, but measurement error in Tobin's q does not completely explain the patterns in investment-cash flow sensitivity. The decline and disappearance cannot be explained by changes in sample composition, corporate governance, or market power; and remain a puzzle.
Book Synopsis Investment-cash Flow Sensitivities are Not Valid Measures of Financing Constraints by : Steven N. Kaplan
Download or read book Investment-cash Flow Sensitivities are Not Valid Measures of Financing Constraints written by Steven N. Kaplan and published by . This book was released on 2000 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Kaplan and Zingales [1997] provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen [1999] criticize those findings. In this note, we explain how the Fazzari et al. [1999] criticisms are either very supportive of the claims in Kaplan and Zingales [1997] or incorrect. We conclude with a discussion of unanswered questions.
Book Synopsis Investment and Financial Constraints by : Thomas Koch
Download or read book Investment and Financial Constraints written by Thomas Koch and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial constraints are a main driver hindering firms' growth potential. The pecking order suggests that firms rely on internal funds when they are available to finance their investment expenditures. If a firm faces larger financial constraints, it is even more dependent on the availability of internally generated cash flow. On the empirical side, investment-cash flow sensitivities and cash-cash flow sensitivities are used to test for the presence of financial constraints. In this paper, we use a large data set and analyze different, sometimes conflicting findings in the literature. We find that (1), the regression results are very sensitive to the splitting scheme used to classify firms into financially constrained and unconstrained firms and results may be different according to the regression technique used, (2), the inclusion of distressed firm years (negative cash flow years) in the regressions changes results significantly and can at least partly explain previous opposite results concerning the usefulness of ICFS and CFSC, (3), cash flow matters, (4), ICFS and CFSC are declining over time and even vanish for some regression specifications in recent years and finally, (5), the relationship between cash flow and investment and to a lower extent the relationship between cash flow and changes in cash holdings are U-shaped.
Book Synopsis The Missing Link Between Financial Constraints and Productivity by : Marialuz Moreno Badia
Download or read book The Missing Link Between Financial Constraints and Productivity written by Marialuz Moreno Badia and published by International Monetary Fund. This book was released on 2009-04-01 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global financial crisis has reopened the debate on the potential spillover effects from the financial sector to the real economy. This paper adds to that debate by providing new evidence on the link between finance and firm-level productivity, focusing on the case of Estonia. We contribute to the literature in two important respects: (i) we look explicitly at the role of financial constraints; and (ii) we develop a methodology that corrects for the misspecification problems of previous studies. Our results indicate that young and highly indebted firms tend to be more financially constrained. Overall, a large number of firms shows some degree of financial constraints, with firms in the primary sector being the most constrained. More importantly, we find that financial constraints do not lower productivity for most sectors.
Book Synopsis Asymmetric Effects of the Financial Crisis by : Mr.Vadim Khramov
Download or read book Asymmetric Effects of the Financial Crisis written by Mr.Vadim Khramov and published by International Monetary Fund. This book was released on 2012-04-01 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses the financial crisis of 2008 as a natural experiment to demonstrate that when measuring investment-cash flow sensitivity, the value of a firm's assets that can be used as collateral should be taken into account. Using panel data on U.S. firms from 1990 to 2011, it was found that the share of physical capital in assets has a strong influence on investment-cash flow sensitivity, which decreased substantially after the crisis when banks changed their expectations about the value of assets on firms' balance sheets. This paper deepens our understanding of firms' investment behavior.
Book Synopsis Investment Behavior, Observable Expectations, and Internal Funds by : Robert E. Carpenter
Download or read book Investment Behavior, Observable Expectations, and Internal Funds written by Robert E. Carpenter and published by . This book was released on 2008 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: Cummins, Hasset, and Oliner(American Economic Review, 2006) construct a new measure of fundamentals, and show that the positive cash flow effects typically found in investment-Q models disappear when traditional Q is replaced with their new measure. Their results are not robust to small changes in their specification or in the dataset used to estimate their model. The explanatory power of cash flow does not disappear when replacing traditional Q with their new measure of Q; it is never there to begin with. Investment's lack of sensitivity to cash flow may be because their data is biased towards firms with positive cash flow (it is negative for only 242 observations of 11431). This bias and our results mute their argument that the positive cash-flow effects obtained in such models may reflect a failure to control properly for fundamentals rather than the presence of financial constraints.
Book Synopsis Finance and Investment by : Colin P. Mayer
Download or read book Finance and Investment written by Colin P. Mayer and published by Oxford University Press. This book was released on 2018 with total page 425 pages. Available in PDF, EPUB and Kindle. Book excerpt: Low growth, low investment, insufficient spend on infrastructure, weak bank lending to the corporate sector, and funding deficiencies of small and medium-sized enterprises are all causes of concern in Europe. To many, they point to fundamental problems in the financing of European companies and in Europe's financial systems. Are these concerns valid and do the structure and performance of the financial system lie at their heart? If so, what should be done to address them, and have the right policy prescriptions been identified to date? A product of the Restarting European Investment Finance research programme, Finance and Investment: The European Case brings together leading researchers to consider the causes of the persistently low level of investment in Europe. It examines the extent to which the financial system is a contributory factor and identifies possible remedies, considering the relation of finance to corporate sector investment, the lending behaviour of banks, the provision of equity financing, and the role of public sector institutions, regulation, and taxation. Finance and Investment provides one of the most comprehensive and thorough analyses of any financial system undertaken to date. It reflects a large body of research using new and existing data sets, employing advanced empirical tools, and exploiting the unique insights provided by the tumultuous events of financial and sovereign debt crises. Together, they comprise an exceptional body of knowledge to advance academic thinking and guide policy formulation.
Book Synopsis Two Essays on Investments by : Jie Zhu
Download or read book Two Essays on Investments written by Jie Zhu and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In my dissertation, I study factors that influence investments from either corporate or institutional perspective. First, I examine the sensitivity of corporate investment to internally generated cash flow and its pattern of change over time across countries. Second, I investigate how a firm's customer profile can shape its ownership structure of institutional investors. Existing studies have documented a puzzling disappearance of investment-cash flow (ICF) sensitivity in the U.S.. In the first chapter, I explore whether economic and financial development can explain the extent of a country's ICF sensitivity and its evolution through time. I find that, in aggregate, ICF sensitivity has also faded around the world; yet it has remained high in countries with low economic and financial development. Further, I find that the access to external finance, especially equity finance, is a key channel through which country-level development affects the sensitivity of investment to internal cash flow. In more developed countries, external finance has become more accessible for firms when their internal cash flow is insufficient, thereby reducing their reliance on internal cash flow. The results indicate that once a country advances to a certain degree of financial and economic development, it becomes more efficient in allocating resources and therefore financial constraints at the individual firm level become less binding. A growing literature has documented different financial implications of a concentrated customer base. In the second chapter, I examine how customer concentration affects institutional investors' investment decisions. I find that a firm's customer concentration tends to attract different groups of institutional investors, depending upon their investment horizons. Specifically, those institutions who trade actively (short-term) would buy the stocks of firms with a more concentrated customer base. Conversely, those institutions who trade less actively (long-term) would buy the stocks of firms with a less concentrated customer base. While the preference of long-term investors is supported by the increased risk associated with the dependency on a few large customers, I find that the improved stock liquidity is the channel through which a concentrated customer base attracts short-term investors. Further, my findings cannot be explained by information transfer along the supply chain.
Book Synopsis A Granular Analysis of Corporate Investment by : Gustavo Grullon
Download or read book A Granular Analysis of Corporate Investment written by Gustavo Grullon and published by . This book was released on 2013 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Capital expenditures by the top 100 firms make up more than 60% of aggregate investment by publicly traded firms, and explain most of the variation in aggregate net fixed private non-residential investment. Surprisingly, these firms have the highest investment-cash flow sensitivity in the economy, despite being the least financially constrained. Further, contrary to the trend among smaller firms, the investment-cash flow sensitivity of the top capital spenders has not disappeared over time. For these firms, we find that cash flows provide better information about future investment opportunities than proxies for Tobin's q. In general, the results from our granular approach indicate that most of the existing evidence based on the behavior of the average firm does not apply to the firms that drive most of the aggregate fluctuations in investment.
Book Synopsis Market Distress and Vanishing Liquidity by : Claudio E. V. Borio
Download or read book Market Distress and Vanishing Liquidity written by Claudio E. V. Borio and published by . This book was released on 2004 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Fundamental Tax Reform by : John W. Diamond
Download or read book Fundamental Tax Reform written by John W. Diamond and published by MIT Press. This book was released on 2008 with total page 567 pages. Available in PDF, EPUB and Kindle. Book excerpt: Papers presented at a conference held at the James A. Baker III Institute for Public Policy at Rice University, in Apr. 2006.
Book Synopsis International Corporate Governance by : Kose John
Download or read book International Corporate Governance written by Kose John and published by Emerald Group Publishing. This book was released on 2011-03-31 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt: Presents research on corporate governance from a number of countries across the world, including the United States, Spain, Malaysia, Israel and others. This title examines many important corporate governance mechanisms, such as board characteristics, ownership structure, legal protection of shareholders, and annual general meetings.
Book Synopsis Asymmetric Effects of the Financial Crisis by : Mr.Vadim Khramov
Download or read book Asymmetric Effects of the Financial Crisis written by Mr.Vadim Khramov and published by International Monetary Fund. This book was released on 2012-04-01 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses the financial crisis of 2008 as a natural experiment to demonstrate that when measuring investment-cash flow sensitivity, the value of a firm's assets that can be used as collateral should be taken into account. Using panel data on U.S. firms from 1990 to 2011, it was found that the share of physical capital in assets has a strong influence on investment-cash flow sensitivity, which decreased substantially after the crisis when banks changed their expectations about the value of assets on firms' balance sheets. This paper deepens our understanding of firms' investment behavior.
Book Synopsis Empirical Capital Structure by : Christopher Parsons
Download or read book Empirical Capital Structure written by Christopher Parsons and published by Now Publishers Inc. This book was released on 2009 with total page 107 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical Capital Structure reviews the empirical capital structure literature from both the cross-sectional determinants of capital structure as well as time-series changes.
Download or read book CAPEX Excellence written by Hauke Hansen and published by John Wiley & Sons. This book was released on 2011-07-13 with total page 361 pages. Available in PDF, EPUB and Kindle. Book excerpt: Much of current management literature focuses on a limited set of 'classical' value levers, such as cost reduction, sales optimization or mergers & acquisitions, thus neglecting another core value lever: capital investments. That capital investments receive such limited attention is all the more surprising when one considers how vitally important they are to the economy as a whole as well as individual businesses. There is significant value-creation potential in optimizing capital investments. Investments not only determine the asset structure of a venture. They also enable the introduction of new products structural cost reductions. The book focuses on core questions to be answered in the critical design and realization phase of new investments: Right positioning – does the competitive situation allow the investment to be successful Right technology – how to optimize timing and risks of technology innovations Right timing – how to cope with economic cycles Right size – how to identify the optimum size of an asset Right location – how to find the best location for an asset Right design – how to make investments lean and flexible Right financing – how to structure the investment financing The book features an introductory section that provides an overview of investments across the globe, across industries and across time provides practical advice on how to allocate capital to several projects within a company’s investment portfolio. Optimising Fixed Asset Investment is illustrated with real world examples from a range of industries. This book is essential reading for managers faced with challenges of making individual or portfolio capital investment decisions and who are responsible for managing these capital assets over their entire asset lifecycle. The ideas put forward within the book will help to sharpen the focus of management on the impact capital investments have on the well-being and growth of their companies. Optimizing Fixed Asset Investments is a strategic manual for everyone involved or interested in large fixed-capital investments.
Book Synopsis Fundamentals of Investment Appraisal by : Martina Röhrich
Download or read book Fundamentals of Investment Appraisal written by Martina Röhrich and published by Walter de Gruyter GmbH & Co KG. This book was released on 2014-09-09 with total page 195 pages. Available in PDF, EPUB and Kindle. Book excerpt: How to make sound investment decisions: Fundamentals of Investment Appraisal, 2nd edition, is based on long-term experience with students and is written in an easily understood style. A case study has been constructed to illustrate all methods discussed. The goal of the book is to pace a sure way through the variety of methods in investment appraisal. Mathematical basics are specifically explained in detail. The book shows clearly why there are different methods in investment appraisal and on where to focus in a given situation. As all methods are introduced by the same case study, it is easy to compare and evaluate the results. The statements in the text are further consolidated by abstracts and evaluations of each of the methods. Exercises with extensive solutions will lead to the confidence which is necessary for an ease of handling the investment appraisal techniques and for a good preparation for students’ exams. German and international students at universities and other institutions of higher education will find this book an excellent systematic preparation for their exams.
