{"title":"Dividend Policy, Corporate Governance and Stock Liquidity","authors":"Rulu Pan, Jing Shi, Qiaoqiao Zhu","doi":"10.2139/ssrn.2570868","DOIUrl":"https://doi.org/10.2139/ssrn.2570868","url":null,"abstract":"This paper examines the effect of corporate governance and stock liquidity on corporate payout policy in the context of the split-share structure reform initiated in 2005 in China. In this reform, non-tradable shares were converted into tradable shares compulsorily. The reform removed a liquidity constraint; meanwhile it facilitated a better alignment of the interests of the controlling shareholders with those of the outside investors. These lead to significant improvements in firms’ liquidity and governance. We find that on average, cash dividends decrease significantly after the reform. The reduction in payouts is more pronounced for firms with higher growth rates and liquidity. In terms of cash dividends, a larger decline in the post-reform periods is observed in firms that are controlled by state shareholders.","PeriodicalId":434407,"journal":{"name":"Corporate Finance Theory","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128424412","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}
{"title":"Market Timing, Investment, and Risk Management","authors":"P. Bolton, Hui Chen, Neng Wang","doi":"10.2139/ssrn.1571149","DOIUrl":"https://doi.org/10.2139/ssrn.1571149","url":null,"abstract":"Firms face uncertain financing conditions, which can be quite severe as exemplified by the recent financial crisis. We capture the firm's precautionary cash hoarding and market timing motives in a tractable model of dynamic corporate financial management when external financing conditions are stochastic. Firms value financial slack and build cash reserves to mitigate financial constraints. The finitely-lived favorable financing condition induces them to rationally time the equity market. This market timing motive can cause investment to be decreasing (and the marginal value of cash to be increasing) in financial slack, and can lead a financially constrained firm to gamble. Quantitatively, we find that firms' optimal responses to the threat of a financial crisis can significantly smooth out the impact of financing shocks on investments, marginal values of cash, and the risk premium over time. Thus, a firm may still appear unconstrained based on its relatively smooth investment over time despite significant underinvestment. This smoothing effect can be used to disentangle financing shocks from productivity shocks empirically.","PeriodicalId":434407,"journal":{"name":"Corporate Finance Theory","volume":"34 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114806673","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}
{"title":"A Unified Theory of Tobin's Q, Corporate Investment, Financing, and Risk Management","authors":"P. Bolton, Hui Chen, Neng Wang","doi":"10.3386/W14845","DOIUrl":"https://doi.org/10.3386/W14845","url":null,"abstract":"This paper proposes a simple homogeneous dynamic model of investment and corporate risk management for a financially constrained firm. Following Froot, Scharfstein, and Stein (1993), we define a corporation's risk management as the coordination of investment and financing decisions. In our model, corporate risk management involves internal liquidity management, financial hedging, and investment. We determine a firm's optimal cash, investment, asset sales, credit line, external equity finance, and payout policies as functions of the following key parameters: 1) the firm's earnings growth and cash-flow risk; 2) the external cost of financing; 3) the firm's liquidation value; 4) the opportunity cost of holding cash; 5) investment adjustment and asset sales costs; and 6) the return and covariance characteristics of hedging assets the firm can invest in. The optimal cash inventory policy takes the form of a double-barrier policy where i) cash is paid out to shareholders only when the cash-capital ratio hits an endogenous upper barrier, and ii) external funds are raised only when the firm has depleted its cash. In between the two barriers, the firm adjusts its capital expenditures, asset sales, and hedging policies. Several new insights emerge from our analysis. For example, we find an inverse relation between marginal Tobin's q and investment when the firm draws on its credit line. We also find that financially constrained firms may have a lower equity beta in equilibrium because these firms tend to hold higher precautionary cash inventories.","PeriodicalId":434407,"journal":{"name":"Corporate Finance Theory","volume":"13 2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114959799","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}
{"title":"A Model of Operational Slack: The Short-Run, Medium-Run, and Long-Run Consequences of Limited Attention","authors":"P. Iliev, I. Welch","doi":"10.2139/ssrn.954150","DOIUrl":"https://doi.org/10.2139/ssrn.954150","url":null,"abstract":"This paper studies institutions, such as firms, in which multiple projects can require attention at unpredictable times. Firms respond optimally by limiting the number of projects they simultaneously undertake (medium-term) and by acquiring attention capacity (long-term). The most interesting implications relate to a variable that would otherwise be interpreted as the sign of an agency conflict: idleness (operational slack). In our full-information model, it is optimal for the institution to be idle some of the time. In the medium-term and long-term, when firms respond optimally, they tend to idle *more* when projects require \"more\" attention and when they have \"less\" attention capacity. Moreover, natural model extensions suggest that managers who want to signal higher quality or who are overly optimistic take on too many projects. This can explain overinvestment and the diversification discount even when managers are not agency-conflicted.","PeriodicalId":434407,"journal":{"name":"Corporate Finance Theory","volume":"96 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-10-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133623756","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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