自由现金流下的过度投资外文翻译.docx
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自由现金流下的过度投资外文翻译
本科毕业论文(设计)
外文翻译
原文:
Over-investmentoffreecashflow
Abstract
Thispaperexaminestheextentoffirmlevelover-investmentoffrecashflow.Usinganaccounting-basedframeworktomeasureover-investmentandfreecashflow,Ifindevidencethat,consistentwithagencycostexplanations,over-investmentisconcentratedinfirmswiththehighestlevelsoffreecashflow.Furthertestsexaminewhetherfirms’governancestructuresareassociatedwithover-investmentoffreecashflow.Theevidencesuggeststhatcertaingovernancestructures,suchasthepresenceofactivistshareholders,appeartomitigateover-investment.
Introduction
Thispaperexaminesfirminvestingdecisionsinthepresenceoffreecashflow.Intheory,firmlevelinvestmentshouldnotberelatedtointernallygeneratedcashflows(Modigliani&Miller,1958).However,priorresearchhasdocu-mentedapositiverelationbetweeninvestmentexpenditureandcashflow(e.g.,Hubbard,1998).Therearetwointerpretationsforthispositiverelation.First,thepositiverelationisamanifestationofanagencyproblem,wheremanagersinfirmswithfreecashflowengageinwastefulexpenditure(e.g.,Jensen1986;Stulz1990).Whenmanagers’objectivesdifferfromthoseofshareholders,thepresenceofinternallygeneratedcashflowinexcessofthatrequiredtomaintainexistingassetsinplaceandfinancenewpositiveNPVprojectscreatesthepotentialforthosefundstobesquandered.Second,thepositiverelationreflectscapitalmarketimperfections,wherecostlyexternalfinancingcreatesthepotentialforinternallygeneratedcashflowstoexpandthefeasibleinvestmentopportunityset(e.g.,Fazzari,Hubbard,&Petersen,1988;Hubbard,1998).Thispaperfocusesonutilizingaccountinginformationtobettermeasuretheconstructsoffreecashflowandover-investment,therebyallowingamorepowerfultestoftheagency-basedexplanationforwhyfirmlevelinvestmentisrelatedtointernallygeneratedcashflows.Indoingso,thispaperisthefirsttoofferlargesampleevidenceofover-investmentoffreecashflow.Priorresearch,suchasBlanchard,Lopez-di-Silanes,andVishny(1994),documentexcessiveinvestmentandacquisitionactivityforelevenfirmsthatexperiencealargecashwindfallduetoalegalsettlement,Harford(1999)findsusingasampleof487takeoverbids,thatcash-richfirmsaremorelikelytomakeacquisitionsthatsubsequentlyexperienceabnormaldeclinesinoperatingperformance,andBates(2005)findsforasampleof400subsidiarysalesfrom1990to1998thatfirmswhoretaincashtendtoinvestmore,relativetoindustrypeers.Thispaperextendsthesesmallsamplefindingsbyshowingthatover-investmentoffreecashflowisasystematicphenomenonacrossalltypesofinvestmentexpenditure.Theempiricalanalysisproceedsintwostages.First,thepaperusesanaccounting-basedframeworktomeasurebothfreecashflowandover-investment.Freecashflowisdefinedascashflowbeyondwhatisnecessarytomaintainassetsinplaceandtofinanceexpectednewinvestments.Over-investmentisdefinedasinvestmentexpenditurebeyondthatrequiredtomaintainassetsinplaceandtofinanceexpectednewinvestmentsinpositiveNPVprojects.Tomeasureover-investment,Idecomposetotalinvestmentexpenditureintotwocomponents:
(i)requiredinvestmentexpendituretomaintainassetsinplace,and(ii)newinvestmentexpenditure.Ithendecomposenewinvestmentexpenditureintoover-investmentinnegativeNPVprojectsandexpectedinvestmentexpenditure,wherethelattervarieswiththefirm’sgrowthopportunities,financingconstraints,industryaffiliationandotherfactors.Undertheagencycostexplanation,managementhasthepotentialtosquanderfreecashflowonlywhenfreecashflowispositive.Attheotherendofthespectrum,firmswithnegativefreecashflowcanonlysquandercashiftheyareabletoraise“cheap”capital.Thisislesslikelytooccurbecausethesefirmsneedtobeabletoraisefinancingandtherebyplacethemselvesunderthescrutinyofexternalmarkets(DeAngelo,DeAngelo,&Stulz,2004;Jensen,1986).Consistentwiththeagencycostexplanation,Ifindapositiveassociationbetweenover-investmentandfreecashflowforfirmswithpositivefreecashflow.Forasampleof58,053firm-yearsduringtheperiod1988–2002,Ifindthatforfirmswithpositivefreecashflowtheaveragefirmover-invests20%ofitsfreecashflow.Furthermore,Idocumentthatthemajorityoffreecashflowisretainedintheformoffinancialassets.Theaveragefirminmysampleretains41%ofitsfreecashflowaseithercashormarketablesecurities.Thereislittleevidencethatfreecashflowisdistributedtoexternaldebtholdersorshareholders.Findinganassociationbetweenover-investmentandfreecashflowisconsistentwithrecentresearchdocumentingpoorfutureperformancefollowingfirmlevelinvestmentactivity.Forexample,Titman,Wei,andXie(2004)andFairfield,Whisenant,andYohn(2003)showthatfirmswithextensivecapitalinvestmentactivityandgrowthinnetoperatingassetsrespectively,experienceinferiorfuturestockreturns.Furthermore,Dechow,Richardson,andSloan(2005)findthatcashflowsretainedwithinthefirm(eithercapitalizedthroughaccrualsor“invested”infinancialassets)areassociatedwithlowerfutureoperatingperformanceandfuturestockreturns.Thisperformancerelationisconsistentwiththeover-investmentoffreecashflowsdocumentedinthispaper.Thesecondsetofempiricalanalysesexaminewhethergovernancestructuresareeffectiveinmitigatingover-investment.Priorresearchhasexaminedtheimpactofavarietyofgovernancestructuresonfirmvaluationandthequalityofmanagerialdecisionmaking(seeBrown&Caylor,2004;Gompers,Ishii,&Metrick,2003;Larcker,Richardson,&Tuna,2005fordetailedsummaries).Collectively,theabilityofcross-sectionalvariationingovernancestructurestoexplainfirmvalueand/orfirmdecisionmakingisrelativelyweak.Consistentwiththis,Ifindevidencethatoutofalargesetofgovernancemeasuresonlyafewarerelatedtoover-investment.Forexample,firmswithactivistshareholdersandcertainanti-takeoverprovisionsarelesslikelytoover-investtheirfreecashflow.1.Freecashflowandover-investment
Thissectiondescribesindetailthevarioustheoriessupportingapositiverelationbetweeninvestmentexpenditureandcashflowandthendevelopsmeasuresoffreecashflowandover-investmentthatcanbeusedtotesttheagencybasedexplanation.1.1.Explanationsforapositiverelationbetweeninvestmentexpenditureandcashflow.
Inaworldofperfectcapitalmarketstherewouldbenoassociationbetweenfirmlevelinvestingactivitiesandinternallygeneratedcashflows.Ifafirmneededadditionalcashtofinanceaninvestmentactivityitwouldsimplyraisethatcashfromexternalcapitalmarkets.IfthefirmhadexcesscashbeyondthatneededtofundavailablepositiveNPVprojects(includingoptionsonfutureinvestment)itwoulddistributefreecashflowtoexternalmarkets.Firmsdonot,however,operateinsuchaworld.Thereareavarietyofcapitalmarketfrictionsthatimpedetheabilityofmanagementtoraisecashfromexternalcapitalmarkets.Inaddition,therearesignificanttransactioncostsassociatedwithmonitoringmanagementtoensurethatfreecashflowisindeeddistributedtoexternalcapitalmarkets.Inequilibrium,thesecapitalmarketfrictionscanserveasasupportforapositiveassociationbetweenfirminvestingactivitiesandinternallygeneratedcashflow.TheagencycostexplanationintroducedbyJensen(1986)andStulz(1990)suggeststhatmonitoringdifficultycreatesthepotentialformanagementtospendinternallygeneratedcashflowonprojectsthatarebeneficialfromamanagementperspectivebutcostlyfromashareholderperspective(thefreecashflowhypothesis).Severalpapershaveinvestigatedtheimplicationsofthefreecashflowhypothesisonfirminvestmentactivity.Forexample,Lamont(1997)andBergerandHann(2003)findevidenceconsistentwithcashrichsegmentscross-subsidizingmorepoorlyperformingsegmentsindiversifiedfirms.However,theevidenceinthesepaperscouldalsobeconsistentwithmarketfrictionsinhibitingtheabilityofthefirmtoraisecapitalexternallyandnotnecessarilyanindicationofover-investment.RelatedevidencecanalsobefoundinHarford(1999)andOpler,Pinkowitz,Stulz,andWilliamson(1999,2001).Harfordusesasampleof487takeoverbidstodocumentthatcashrichfirmsaremorelikelytomakeacquisitionsandthese“cashrich”acquisitionsarefollowedbyabnormaldeclinesinoperatingperformance.Opleretal.(1999)findsomeevidencethatcompanieswithexcesscash(measuredusingbalancesheetcashinformation)havehighercapitalexpenditures,andspendmoreonacquisitions,evenwhentheyappeartohavepoorinvestmentopportunities(asmeasuredbyTobin’sQ).Perhapsthemostdirectevidenceontheover-investmentoffreecashflowistheanalysisinBlanchardetal.(1994).Theyfindthatelevenfirmswithwindfalllegalsettlementsappeartoengageinwastefulexpenditure.Collectively,priorresearchissuggestiveofanagency-basedexplanationsupportingthepositiverelationbetweeninvestmentandinternallygeneratedcashflow.However,thesepapersarebasedonrelativelysmallsamplesanddonotmeasureover-investmentorfreecashflowdirectly.Thus,thefindingsofearlierworkmaynotbegeneralizabletolargersamplesnorisitdirectlyattributabletotheagencycostexplanation.Moregenerally,acriticismoftheliteratureexaminingtherelationbetweeninvestmentandcashflowisthatfindingapositiveassociationmaymerelyindicatethat