Investment and Cash Flow: New Evidence

2016 ◽  
Vol 51 (4) ◽  
pp. 1135-1164 ◽  
Author(s):  
Jonathan Lewellen ◽  
Katharina Lewellen
Keyword(s):  
Measurement Error ◽  
Cash Flow ◽  
Strong Evidence ◽  
Investment Decisions ◽  
Free Cash Flow ◽  
Financing Constraints ◽  
Flow Problems ◽  
Cash Flow Sensitivities ◽  
New Evidence

We study the investment–cash flow sensitivities of U.S. firms from 1971–2009. Our tests extend the literature in several key ways and provide strong evidence that cash flow explains investment beyond its correlation with q. A dollar of current- and prior-year cash flow is associated with $0.32 of additional investment for firms that are the least likely to be constrained and $0.63 of additional investment for firms that are the most likely to be constrained, even after correcting for measurement error in q. Our results suggest that financing constraints and free-cash-flow problems are important for investment decisions.

Dead Hand Proxy Puts and Hedge Fund Activism

2018 ◽  
Vol 54 (4) ◽  
pp. 1615-1642
Author(s):  
Sean J. Griffith ◽  
Natalia Reisel
Keyword(s):  
Cash Flow ◽  
Hedge Fund ◽  
Cost Benefit ◽  
Free Cash Flow ◽  
Cross Sectional ◽  
Flow Problems ◽  
Banking Relationships ◽  
Hedge Fund Activism ◽  
The Cost ◽  
Sectional Analysis

We investigate the Dead Hand Proxy Put, a contractual innovation in corporate debt agreements that may impact hedge fund activism. We find the provision principally in loans, not bonds, and provide evidence linking the adoption of the provision to hedge fund activism. Furthermore, controlling for endogeneity, we find that the provision significantly reduces the cost of loans. Bondholder wealth also increases. Moreover, cross-sectional analysis of share returns reveals that the provision is positively associated with repeat banking relationships and negatively associated with free cash flow problems, suggesting a cost-benefit tradeoff.

scholarly journals Kebijakan Dividen dari Perspektive Agency Cost Model (Studi Kasus Perusahaan yang Terdaftar di Bursa Efek Indonesia periode 2011-2013)

2016 ◽  
Vol 5 (1) ◽  
pp. 73
Author(s):  
Akhmad Hitten
Keyword(s):  
Cash Flow ◽  
Ownership Structure ◽  
Cost Model ◽  
Investment Decisions ◽  
Listed Companies ◽  
Agency Cost ◽  
Free Cash Flow ◽  
Dividend Policies ◽  
Main Model ◽  
Observation Period

The paper examines the influence of agency theory on dividend policies with free cash flow,maturity, capital structure, and ownership dividend variables. The sample used in this research isIndonesian listed companies with observation period from 2010 to 2013, and the data collectiontechnique used is data pooling or merging data. The data is analyzed with multiple linearregression analysis in SPSS program. The result of this study indicates that free cash flow,maturity, and ownership structure do not influence devidend policies, however capital structureinfluences dividend policies in Indonesian listed companies. The research also implies thatagency cost theory, as the main model of relevance dividend preposition, cannot explaindividend policies in Indonesian Companies. The investors cannot rely solely on dividend policiesin term of investment decisions in the future. 

scholarly journals Zero-Debt Policy under Asymmetric Information, Flexibility and Free Cash Flow Considerations

2020 ◽  
Vol 13 (12) ◽  
pp. 296
Author(s):  
Anton Miglo
Keyword(s):  
Asymmetric Information ◽  
Cash Flow ◽  
Free Cash Flow ◽  
High Quality ◽  
Tax Rate ◽  
Investment Projects ◽  
Flow Problems ◽  
Investment Size ◽  
Debt Policy

We build a model of debt for firms with investment projects, for which flexibility and free cash flow problems are important issues. We focus on the factors that lead the firm to select the zero-debt policy. Our model provides an explanation of the so-called “zero-leverage puzzle”. It also helps to explain why zero-debt firms often pay higher dividends when compared to other firms. In addition, the model generates new empirical predictions that have not yet been tested. For example, it predicts that firms with zero-debt policy should be influenced by free cash flow considerations more than by bankruptcy cost considerations. Additionally, the choice of zero-debt policy can be used by high-quality firms to signal their quality. This is in contrast to most traditional signalling literature where debt serves as a signal of quality. The model can explain why the probability of selecting the zero-debt policy is positively correlated with profitability and investment size and negatively correlated with the tax rate. It also predicts that firms that are farther away from their target capital structures are less likely to select the zero-debt policy when compared to firms that are close to their target levels.

Free Cash Flow, Kinerja Internal, Dan Pengaruhnya Terhadap Nilai Perusahaan

Liquidity ◽  
2018 ◽  
Vol 7 (1) ◽  
pp. 63-69
Author(s):  
Irma Sari Permata ◽  
Nana Nawasiah ◽  
Trisnani Indriati
Keyword(s):  
Cash Flow ◽  
Firm Value ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Corporate Value ◽  
Manufacturing Companies ◽  
Flow Problems ◽  
Internal Conflicts ◽  
Company Value ◽  
Free Cash Flows

The purpose of this study is to answer the phenomena that occur both theoretical phenomena and the empirical phenomenon of potential internal conflicts to the free cash flow of the company and its use for the benefit of increasing corporate value. Such internal conflicts require an appropriate settlement so as not to affect the company's failure. This study examines the role of dividend policy and ownership structure in moderating the relationship between free cash flow and firm value on manufacturing companies listed on BEI as many as 236 companies using randon sampling method. Free cash flows, profitability, firm size have a significant effect on company value while company growth has no significant effect. Dividends and majority ownership and managerial moderate free cash flow against corporate value. The results of this study are expected to generate alternative solutions to free cash flow problems and increase the value of the company.  

scholarly journals The Implications of Investment–Cash Flow Sensitivities for Franchising Firms: Theory and Evidence From the Restaurant Industry

2019 ◽  
Vol 60 (1) ◽  
pp. 77-91 ◽  
Author(s):  
Tarik Dogru ◽  
Arun Upneja
Keyword(s):  
Cash Flow ◽  
Financial Constraints ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Restaurant Industry ◽  
Cash Flow Sensitivity ◽  
Cash Flow Sensitivities ◽  
Scant Attention ◽  
Restaurant Firms ◽  
Flow Theories

Expansion through franchising could help restaurant firms solve financial constraints, but it could also make overinvestment easier for misaligned CEOs. Whereas the former topic has been extensively examined, the latter has received scant attention from researchers. The purpose of this study is to investigate whether franchising alleviates financial constraints or leads to overinvestment problems in restaurant firms. For this purpose, we analyzed and compared investment–cash flow sensitivities between constrained and unconstrained; franchising and nonfranchising; constrained, franchising and unconstrained, franchising; and constrained, nonfranchising and unconstrained, nonfranchising restaurant firms. The results show that unlike other industries, unconstrained restaurant firms depend more on cash flows for investment than constrained restaurant firms do. Although investment–cash flow sensitivity in nonfranchising restaurant firms was similar to that of firms in other industries, unconstrained restaurant firms that expand through franchising rely more on cash flows. These findings suggest that restaurant firms’ expansion through franchising is likely to increase overinvestment problems. Franchising could serve as a long-term method of financing for financially constrained firms as well as a short-term financing tool. However, unconstrained, franchising firms should distribute their excess cash flows to shareholders. Theoretical implications are discussed within the realms of the franchising, pecking order, and free cash flow theories.

scholarly journals Disclosure Quality and Dividend Payout in Saudi Firms

2018 ◽  
Vol 12 (1) ◽  
pp. 16
Author(s):  
Rashidah Abdul Rahman ◽  
Eman Saleh Fadel ◽  
NajlaAbdul Rahman ◽  
Amal Awad
Keyword(s):  
Cash Flow ◽  
Saudi Arabian ◽  
Free Cash Flow ◽  
Disclosure Quality ◽  
Dividend Payout ◽  
Listed Firms ◽  
Flow Problems ◽  
Quality Disclosure ◽  
Excess Cash

This study examines how disclosure quality influences the dividend payouts of firms, and provides further evidence concerning the outcome hypothesis and substitution hypothesis. Using a sample of non-financial Saudi Arabian listed firms during 2012-2014, our results provide support for the substitution hypothesis in which outsiders demand higher dividends in a low-quality disclosure environment as a “substitute” for opacity. Further analysis shows that managers pay a higher dividend in an opaque environment not only to establish a reputation among outside capital suppliers but also because they have to disgorge excess cash to circumvent free cash flow problems.

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