Matching Items (4)
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- All Subjects: Cash management
- All Subjects: Chief executive officers
- Creators: Bates, Thomas
- Creators: Custodio, Claudia
Description
I show that firms' ability to adjust variable capital in response to productivity shocks has important implications for the interpretation of the widely documented investment-cash flow sensitivities. The variable capital adjustment is sufficient for firms to capture small variations in profitability, but when the revision in profitability is relatively large, limited substitutability between the factors of production may call for fixed capital investment. Hence, firms with lower substitutability are more likely to invest in both factors together and have larger sensitivities of fixed capital investment to cash flow. By building a frictionless capital markets model that allows firms to optimize over fixed capital and inventories as substitutable factors, I establish the significance of the substitutability channel in explaining cross-sectional differences in cash flow sensitivities. Moreover, incorporating variable capital into firms' investment decisions helps explain the sharp decrease in cash flow sensitivities over the past decades. Empirical evidence confirms the model's predictions.
ContributorsKim, Kirak (Author) / Bates, Thomas (Thesis advisor) / Babenko, Ilona (Thesis advisor) / Hertzel, Michael (Committee member) / Tserlukevich, Yuri (Committee member) / Arizona State University (Publisher)
Created2013
Description
This paper examines how equity analysts' roles as information intermediaries and monitors affect corporate liquidity policy and its associated value of cash, providing new evidence that analysts have a direct impact on corporate liquidity policy. Greater analyst coverage (1) reduces information asymmetry between a firm and outside shareholders and (2) enhances the monitoring process. Consistent with these arguments, analyst coverage increases the value of cash, thereby allowing firms to hold more cash. The cash-to-assets ratio increases by 5.2 percentage points when moving from the bottom analyst-coverage decile to the top decile. The marginal value of $1 of corporate cash holdings is $0.93 for the bottom analyst-coverage decile and $1.83 for the top decile. The positive effects remain robust after a battery of endogeneity checks. I also perform tests employing a unique dataset that consists of public and private firms, as well as a dataset that consists of public firms that have gone private. A public firm with analyst coverage can hold approximately 8% more cash than its private counterpart. These findings constitute new evidence on the real effect of analyst coverage.
ContributorsChang, Ching-Hung (Author) / Bates, Thomas (Thesis advisor) / Bharath, Sreedhar (Committee member) / Lindsey, Laura (Committee member) / Arizona State University (Publisher)
Created2012
Description
This paper examines whether CEOs with general managerial skills are better at achieving the goals of external communication. Using the General Ability Index developed by Custodio, Ferreira, and Matos (2013) to measure CEOs' general managerial skills, I find that firms with generalist CEOs are more likely to obtain the desired outcomes of communication, including the smaller difference between analyst forecasts and management guidance, less dispersion in analyst forecasts, higher analyst following, and higher institutional ownership, after controlling for CEO talent and the impact of Regulation FD. Moreover, I provide direct evidence that general managerial skills are more important to external communication under poor information environments. I also investigate the characteristics of analysts who follow firms with generalists, and my findings suggest the private interaction with analysts is an important communication channel for generalists. Finally, I find that generalists are able to attract dedicated investors and gain long-term capital for their firms. Overall, I provide evidence on the growing importance of general managerial skills in external communication. This paper offers new insights into why CEOs with general skills are paid at a premium over those with specific skills, as documented in previous studies.
ContributorsYeh, Eugenia (Author) / Hillegeist, Steve (Thesis advisor) / Brown, Jennifer (Committee member) / Custodio, Claudia (Committee member) / Arizona State University (Publisher)
Created2015
Description
Chief Executive Officers (CEOs) whose observed personal option-holding patterns are not consistent with theoretical predictions are variously described as overconfident or optimistic. Existing literature demonstrates that the investment and financing decisions of such CEOs differ from those of CEOs who do not exhibit such behavior and interprets the investment and financing decisions by overconfident or optimistic CEOs as inferior. This paper argues that it may be rational to exhibit behavior interpreted as optimistic and that the determinants of a CEO’s perceived optimism are important. Further, this paper shows that CEOs whose apparent optimism results from above average industry-adjusted CEO performance in prior years make investment and financing decisions which are actually similar, and sometimes superior to, those of unbiased CEOs.
ContributorsWalton, Richard (Author) / Bates, Thomas (Thesis advisor) / Lindsey, Laura (Committee member) / Babenko, Ilona (Committee member) / Arizona State University (Publisher)
Created2016