صدور و خرید مجدد: تأثیر قیمت گذاری اشتباه، چرخه عمر شرکت های بزرگ و امواج مالی

This paper examines the impact of mispricing, corporate life cycle, and financing waves on the debt/equity decision when firms (1) acquire funds and (2) repurchase funds by using a large international data set from 47 countries for the period 1984–2006. Our results support the mispricing hypothesis and the corporate life cycle hypothesis for both the acquisition of new funds and the repurchase of funds. However, our findings are consistent with the financing wave hypothesis only for repurchases of firms residing in common law countries as well as market-based countries.

For a long time the trade-off and pecking order theories were the leading explanations for firms’ financial policies. More recently, a number of other hypotheses have been advanced. This paper examines three of these relatively new approaches—mispricing, corporate life cycle, and financial waves on the decisions (1) to issue equity or debt and (2) to repurchase equity or debt. Of the three theories, mispricing has been studied the most, suggesting that managers take advantage of temporary deviations of a firm's stock price from its “true” value to implement financing policies. Managers issue (repurchase) stock when the stock price is viewed as abnormally high (low). Researchers have noted high stock returns prior to stock issues and low returns after stock equity issues. Both facts are consistent with firms taking advantage of mispricing (Hovakimian et al., 2001, Baker and Wurgler, 2000, Baker and Wurgler, 2002, Kim and Weisbach, 2008 and Loughran and Ritter, 1995).2Kim and Weisbach (2008) also note that firms with high market to book ratios keep a higher percentage of the proceeds from a seasoned equity offering in cash than firms with low market to book ratios. This suggests that firms with high market to book ratios are taking advantage of mispricing by issuing stock and using some of the funds later. Additional support for mispricing comes from the survey done by Graham and Harvey (2001) where executives state the importance of mispricing in equity issuance. Researchers have documented low returns prior to repurchases and high returns subsequent to repurchases (Dittmar, 2000, Hovakimian et al., 2001, Skinner, 2008 and Peyer and Vermaelen, 2009), results consistent with mispricing. The survey research by Brav et al. (2005) also documents the importance of mispricing to executives in the repurchase decision.3 While most of the evidence is in favor of mispricing, some studies minimize its importance. Schultz (2003) and Carlson et al. (2006) present models that explain the return behavior of IPOs that are not based on mispricing. DeAngelo et al. (2010) argue that firms issue SEOs to overcome liquidity issues and not principally to exploit mispricing. McLean (2011) posits that firms increasingly are issuing stock to save cash as their precautionary needs have increased. The financial wave approach has been articulated as another theory to explain corporate financial policies. Dittmar and Dittmar (2008) propose that stock issues and repurchases are part of the same economic expansion period and have very little to do with misvaluation. Economic growth results in an increase in demand for funds and a relative (to debt) reduction in the cost of equity. Firms respond by issuing equity which occurs early during economic growth. In contrast, repurchases happen near the end of the same cycle when cash flows are still high but the need for new funds is generally less. The corporate life cycle theory (discussed in DeAngelo et al., 2010) suggests that firms generally issue and repurchase at certain times of their life cycle. Young firms with lots of investment opportunities but little earnings issue stock. Older firms with fewer investment opportunities but greater cash flows will tend to fund internally and distribute funds as dividends and/or repurchases. DeAngelo et al. (2010) find some support for the corporate life cycle theory but they emphasize that this theory is not a stand-alone theory that can explain firms’ issuance decisions. Studies examining mispricing, financing waves, and corporate life cycle on share issuance or repurchase usually examine whether external equity increases or decreases as a result of certain external or internal events. We investigate mispricing, financing waves, and corporate life cycle hypotheses using a different approach. We ask instead whether external equity increases or decreases relative to changes in debt. Does the share of new external equity to total net new external funds change as a result of economic growth, prior or past returns, or the age of the firm? We feel that if mispricing, financing waves or the corporate life cycle can help to explain firms’ issuance and repurchase decisions then they should be able to explain not only an absolute increase in equity but more importantly a relative increase in equity. If both debt and external equity generally increase during periods of economic growth, our findings can easily differ from previous studies if debt increases more than equity. Our approach is as follows: We first divide all yearly firm observations into two separate groups—(1) firms that are net issuers of funds (the sum of net debt and net equity is greater than zero) or (2) firms that are net repurchasers of funds (the sum of net debt and net equity is less than zero). It is important to know whether a firm in a given year is a net issuer of funds or a net repurchaser because the motivations are clearly very different. In one case, the firm is acquiring additional funds and in the other case, the firm is returning funds to its suppliers. In our study, a firm for a particular year, for example, could be a net issuer of stock yet be classified as a net repurchaser of funds because the amount of debt repurchased was larger than the amount of equity issued. Our study also investigates whether these theories apply in different legal regimes (common and civil law). Legal regimes vary in their laws and the enforcement of those laws regarding the protection of minority shareholders and creditors. If minority shareholders and creditors believe that the funds they provide will not be expropriated or wasted and their rights in general (such as those when the firm has financial difficulties) are well protected, then these suppliers of funds will be more willing to provide funds and at a cheaper cost. Firms will benefit from having more funds available and also at cheaper rates. Beck and Levine (2002) document that economic growth is favorably impacted by legal regimes that protect outside investors well. Common law countries (as opposed to civil law countries) have in general more favorable laws for minority shareholders and creditors (La Porta et al., 1998).4 We also address whether these theories apply in both market-based and bank-based countries. We control for endogeneity. The amount of investment influences the amount of new funds raised and quite possibly the mix of funds raised. For empirical support see Gatchev et al., 2009 and Gatchev et al., 2010, and Kim and Weisbach (2008). Likewise, repurchases often substitute for dividends (see Skinner, 2008). Our data set reveals that firms are often borrowing new long-term funds at the same time they are reducing the amount of other long-term borrowings. When firms are net issuers of funds, firms repurchase relatively little equity or preferred stock. However, when these firms are net repurchasers of funds, they frequently issue new common equity and/or preferred stock at the same time. Firms often are raising new funds via equity (debt) at the same time they are retiring/converting/repurchasing debt (equity). We find that firms in all of our samples issue relatively more stock after periods of high-adjusted returns and, with the exception of the US, issue relatively more equity prior to low-adjusted returns. Companies generally repurchase more equity after low-adjusted returns and before high-adjusted returns. These results are consistent with mispricing. We find little evidence that stock issues occur more often in periods of economic expansions. In fact, we find just the opposite. However, we do observe that stock repurchases for firms residing in common law countries and also in market-based countries occur relatively more at the end of economic expansions, a fact consistent with Dittmar and Dittmar (2008). We find support for the life cycle hypothesis in that firms generally issue equity relatively more in their early years and repurchase equity more in their mature years. Our findings suggest that increases in investment are funded relatively more with debt. We also see that firms in both their issue and repurchase decisions move toward target capital structures. In particular, we observe that firms move toward industry norms. As expected, larger firms issue relatively more debt and repurchase more equity. The rest of the paper is as follows: In Section 2, we present our hypotheses and in Section 3, we discuss data sources and methodology. In Section 4, results are given and finally, in Section 5, conclusions are offered.

It is well known that market imperfections (for example, taxes, bankruptcy costs, agency costs, and information asymmetries) make capital structure relevant and important. We seek to understand better how firms make capital structure decisions. Our paper examines three relatively new theories of capital structure (mispricing, financial waves, and corporate life cycle) to see if they can help explain firms’ issuance and repurchase decisions. Our approach for testing these three theories differs from previous research. Instead of asking whether mispricing, financial waves or the corporate life cycle are associated with changes in equity, we inquire instead whether these three theories are related to increases or decreases in equity relative to debt. Our results show that mispricing influences both the decision to issue equity and the decision to repurchase equity. Our findings suggest that some executives time their equity issues and repurchases. These managers issue after high-adjusted returns and before low-adjusted returns and repurchase after low-adjusted returns but before high-adjusted returns. We also find support for the corporate life cycle hypothesis. Younger firms issue more equity and repurchase less equity than older firms. On the other hand, our results are not consistent with the financing wave hypothesis. Firms do not issue relatively more equity during economic expansion periods. Only for common law countries and market-based countries do we find some evidence for the financial wave hypothesis and that is limited to repurchases. Overall our findings are fairly robust across different samples (all, large changes, US, non-US, common law, civil law, market-based, and bank-based). With one noticeable exception (repurchasing on the financial wave hypothesis), our results do not depend on legal regimes or financial structure. Our conclusions are also not based on US observations alone as the findings from non-US observations generally mirror those from the US. Future research might investigate under what circumstances these hypotheses hold. For example, does the amount of new investment needed (large or small) influence whether mispricing, financing waves, or corporate life cycle hold? We could subdivide the observations into those where the firm had unusually large capital expenditures as a percent of total assets versus those where the ratio of capital expenditures to total assets was smaller and see whether the three hypotheses hold in both groups. Our empirical design would have to change to address this question. Similarly, observations could be grouped according to how large the amount of cash and short-term investments the firm holds.