外文翻译过度投资的自由现金流量.docx

外文翻译过度投资的自由现金流量.docx

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外文翻译过度投资的自由现金流量

本科毕业论文（设计）

外文翻译

原文：

Over-investmentoffreecashflow

Thispaperexaminesfirminvestingdecisionsinthepresenceoffreecashflow.Intheory,firmlevelinvestmentshouldnotberelatedtointernallygeneratedcashflows（Modigliani&Miller,1958）.However,priorresearchhasdocumentedapositiverelationbetweeninvestmentexpenditureandcashflow（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,&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.Collectively,theabilityofcross-sectionalvariationingovernancestructurestoexplainfirmvalueand/orfirmdecisionmakingisrelativelyweak.Consistentwiththis,Ifindevidencethatoutofalargesetofgovernancemeasuresonlyafewarerelatedtoover-investment.Forexample,firmswithactivistshareholdersandcertainanti-takeoverprovisionsarelesslikelytoover-investtheirfreecashflow.

Thenextsectiondevelopstestablehypothesesconcerningtherelationbetweenfreecashflowandover-investment.Section2describesthesampleselectionandvariablemeasurement.Sectiondiscussesempiricalresultsfortheover-investmentoffreecashflow.Section4containsempiricalanalysisexaminingthelinkbetweencorporategovernanceandtheover-investmentoffreecashflow,whilesection5concludes.

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,acriticismoftheliteratureexaminingtherelationbetweeninvestmentandcashflowisthatfindingapositiveassociationmaymerelyindicatethatcashflowsserveasaneffectiveproxyforinvestmentopportunities.Myaimistobettermeasuretheconstructsoffreecashflowandover-investmentbyincorporatinganaccounting-basedmeasureofgrowthopportunities,andtestwhethertherelationisevidentinalargesampleoffirm