سیاست های سرمایه گذاری و مالی شرکت های بزرگ زمانی که تامین مالی در آینده بدون اصطکاک نیست
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|9988||2011||19 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Corporate Finance, Volume 17, Issue 3, June 2011, Pages 675–693
We study a model in which future financing constraints lead firms to have a preference for investments with shorter payback periods, investments with less risk, and investments that utilize more pledgeable assets. The model also shows how investment distortions towards more liquid, safer assets vary with the marginal cost of external financing and with firm internal cash flows. Our theory helps reconcile and interpret a number of patterns reported in the empirical literature, in areas such as risk-taking behavior, capital structure choices, hedging strategies, and cash management policies. For example, contrary to Jensen and Meckling [Jensen, M., Meckling, W., 1976. Theory of the Firm: managerial behavior, agency costs, and ownership structure. Journal of Financial Economics 305–360], we show that firms may reduce rather than increase risk when leverage increases exogenously. Furthermore, firms in economies with less developed financial markets will not only take different quantities of investment, but will also take different kinds of investment (safer, short-term projects that are potentially less profitable). We also point out to several predictions that have not been empirically examined. For example, our model predicts that investment safety and liquidity are complementary: constrained firms are specially likely to decrease the risk of their most liquid investments.
Keynes (1936) originally pointed out that the ability of capital markets to provide financing for projects can affect firms' financial policies (p. 196). Keynes argued that if a firm can always costlessly access external capital markets, then it has no reason to save cash internally. Alternatively, if a firm faces incremental costs each time it raises capital, then it can increase its value by maintaining a more liquid balance sheet. Keynes focused his discussion on corporate cash policies, but the argument is much more general: any decision that affects a firm's ability to finance its projects will be affected by the distribution of financing demand and costs across time. In this paper, we extend the above insight into the question of how real investments are affected by intertemporal financing frictions. In particular, we show that when future projects are valuable and capital markets are imperfect, factors related to a firm's ability to smooth the financing of investment over time become relevant to capital budgeting decisions today. This argument is quite general and has relevance to any situation in which a firm potentially faces costly financing decisions in the future, regardless of whether the firm currently faces costly financing. Indeed, we argue that a number of existing empirical findings can be explained through this idea, in which firms take actions today to minimize the impact of future financial constraints.1 We formalize these arguments in a simple framework. Suppose that a firm can choose among a menu of projects that differ across a number of dimensions, including not only the value of the cash flows produced, but also their timing, risk profile, and the liquidity of the assets the firm must acquire. The net present value (NPV) rule implies that the appropriate calculation for determining the value of an investment is to compare the investment's initial cost to the discounted expected cash flows from the project using the discount rate that reflects the project's risk. However, investment decision-making becomes more complex when firms face capital markets imperfections. In the absence of competitively-priced external funding, observed spending can depart from what would result from standard capital budgeting approaches, introducing significant distortions in the firm investment process. Our model characterizes the nature of these distortions. In particular, when credit constraints are likely to bind in the future, capital budgeting rules are distorted towards projects that generate earlier cash flows, and against those that generate back-loaded flows. This distortion occurs because cash flows from current investments can provide financing for future valuable projects that otherwise would go unfunded. A practical implication of this distortion is that rather than being valued solely on the basis of its own independent merit, a project's valuation will also be influenced by the firm's position in the capital markets and by the project's position in the firm's investment schedule. We also model firms' choices between projects that differ with respect to their risk profile. When financing constraints are likely to bind in the future, firms prefer projects with safe cash flows over projects with the same (or even higher) NPV but risky cash flows, because safer cash flows can help mitigate future financing constraints, particularly in poor states of the world. The model also shows how firms will distort their investment policy towards projects that generate more tangible, verifiable cash flows (i.e., collateralizable projects) when they face financing constraints. Finally, the model shows that constrained firms will tend to distort the risk profile of the most liquid projects, rather than that of illiquid ones. In short, because illiquid projects have a lower impact on future financing capacity, their riskiness matters less for a constrained firm. As a result, project liquidity and safety become complementary attributes in the firm's investment policy. In addition to advancing a number of new, untested predictions regarding firm investment policies (see Section 2), our analysis provides new insights into the following much-debated research questions: 1) Why firms do not appear to “risk-shift” when standard theory says they should? 2) Why are firms typically “underleveraged”? 3) How do firms decide on the liquidity of their asset portfolio, in particular, how much cash to hold? 4) Why do managers appear to hedge operationally in addition to financially, even if operational hedges come at a real cost to the firm? 5) Why do firms in countries with underdeveloped capital markets make different types of investments than firms in countries with developed capital markets? and 6) Why does financial development add so much to corporate growth by changing not only the quantity of investments, but also their type and mix? Let us briefly discuss some of these questions here. One of the most widely-discussed arguments in corporate finance is the Jensen and Meckling (1976) “risk-shifting” story, by which firms have incentives to increase project risk when they become highly leveraged and near financial distress. While this argument has been taken to be an important consideration in capital structure decisions, there has been very little direct evidence of risk-shifting in practice.2 One of the extensions of our basic model (Section 1) describes how financing constraints can lead to an effect that offsets a firm's incentives to risk-shift. In particular, when leverage leads firms to expect higher costs of external finance in the future, they distort investments toward safer projects. This effect is one possible reason why there is virtually no evidence that firms actually increase risk in the manner suggested by Jensen and Meckling. In addition, our analysis suggests an additional reason why firms limit their leverage. Higher leverage creates incentives for firms to distort real investments towards safer and liquid but potentially less profitable projects. Our analysis also adds to the literature on corporate cash holdings. Previous work has suggested that a firm's cash balances and incremental savings out of new cash flows should be a function of the firm's position in the financial market (e.g., Almeida et al., 2004). We extend and refine this analysis in Section 2 by considering additional ways in which a constrained firm can transfer resources through time. In particular, we show that the sign of “cash–cash flow sensitivities” need not be positive when the firm has access to liquid investments other than cash. An increase in current cash flows, for example, can reduce future costs of external financing through its effect on liquid capital investments, thereby reducing the demand for cash. Consequently, whether cash–cash flow sensitivities are positive or negative becomes an empirical question. We review the available evidence in Section 3. Our arguments also have implications for the burgeoning literature on international comparisons of corporate financial policy. Much of this literature documents that there is substantial variation across countries in the ability of firms to raise external finance (see, e.g., La Porta et al., 1997 and La Porta et al., 1998). Our model suggests that a high cost of external finance should affect not only the quantity of investments made in different countries, but also the types of investments that we observe. In particular, where costs of raising additional external finance are expected to be high, we should observe a preference for investments that use more tangible assets and generate more collateral. The empirical literature largely supports these predictions (see, e.g., Demirgüç-Kunt and Maksimovic, 1999). A consequence of our theory is that financial development should make firms in emerging markets more prone to make longer term, potentially riskier investments over time. Noteworthy, the effect of financial development on investment distortions inside firms can also help explain the strong link between financial development and investment efficiency (see Beck et al., 2000 and Wurgler, 2000). Our paper contributes to the existing literature on financing constraints (see Hubbard, 1998 and Stein, 2003 for reviews) by considering intertemporal links between financing constraints and investment. These links generate implications that are absent from a purely static framework. For example, financial constraints do not always generate underinvestment in all kinds of assets. While this result is generally true for illiquid, long-term projects (those that do not generate cash flows that can be used to finance future investments), it need not hold for investments that help mitigate future financing problems. Whether the constrained firm underinvests or overinvests in liquid assets – relative to the first-best solution occurring with frictionless capital markets – depends on the relative strength of current versus future constraints, and on the profitability of current versus future investment opportunities. We show that in order to derive robust empirical implications about the effects of constraints on investment, it is helpful to look at the ratios between different kinds of investment. For example, irrespective of whether constraints cause under or overinvestment in liquid assets, our analysis implies that the ratio of liquid to illiquid investments (and of safe to risky investments) is increasing in the degree of financing constraints. Previous papers have considered intertemporal implications of financing constraints. Smith and Stulz (1985) and Froot et al. (1993), for example, argue that one reason for corporate hedging is to minimize future financing costs and future costs of financial distress. Essentially, their argument is that constrained firms have incentives to use financial instruments such as forwards, futures, and options to hedge negative cash flow shocks that have real effects on investment or distress costs. In contrast, our paper focuses on operational hedges that might involve distortions in real investments. Operational hedges are likely to be more costly than financial hedges. In practice, however, several sources of cash flow risk cannot be hedged using financial derivatives (see Section 4). As we discuss below, distortions arising from operational hedges are likely to be very important, especially in situations in which derivative markets are poorly developed. Other papers have also looked at intertemporal links between financing constraints and investment. Boyle and Guthrie (2003) analyze firms' choice of investment in a real-options framework, showing that constrained investment can be accelerated with respect to the first-best schedule due to future financing frictions. The nature of the interactions between real investment and financial constraints considered by Boyle and Guthrie is markedly different from ours, nonetheless. For example, their model does not allow for cash flows from current investments to affect future financing constraints. Froot and Stein (1998) consider a model in which financial institutions cannot frictionlessly hedge the risks associated with their portfolios in the capital markets, and thus also use capital structure and capital budgeting as hedging devices. Hennessy et al. (2005) show that firms anticipating collateral constraints experience a side benefit from current investment because installed capital relaxes future constraints. Thakor (2000) shows that firms may prefer projects that pay back faster when they need to finance future investments with internal funds.3 In a similar fashion, Kim et al. (1998) show that firms might invest in liquid assets (e.g., cash) that earn low returns if they anticipate a future need for costly external financing.4 An important innovation of our paper relative to these papers is that we model the constrained firm's choice over a menu of investments that differ simultaneously along several dimensions, including risk and liquidity. In contrast, Froot and Stein focus on risk distortions, Hennessy et al. consider only one type of capital asset, and Kim et al. and Thakor focus on investment liquidity. Our focus on a menu of investments generates new empirical implications, including the effects of financial constraints and cash flows on the ratios between different kinds of investment, the complementarity between safety and liquidity of projects, and implications about cash flow sensitivities of cash holdings in the presence of alternative liquid investments. The remainder of the paper proceeds as follows. Section 2 introduces our basic theory, and describes its main implications. Section 3 builds on the general framework of Section 2 to characterize some applications of our main results to specific areas of corporate finance, including cash policies and capital structure choices. Section 4 presents a discussion of empirical findings in light of the implications of the model. We show how findings in disparate areas such as capital structure, hedging and cash policies, product market competition, and international corporate finance can be understood as implications of the same types of investment distortions. Section 5 concludes.
نتیجه گیری انگلیسی
The majority of managers in the U.S. and Europe list “financial flexibility” as the most important goal of their firms' financial policies. Managers' stated policies are consistent with the idea of ensuring funding for present and future investment undertakings in a world where contracting and information frictions often force firms to pass up profitable opportunities. A consequence of these frictions is that they affect the marginal costs and benefits of various projects depending on both the firm's financial position and on the project's ability to help the firm finance future investments. We develop this idea in a simple model and discuss numerous implications. The key insight of the model is that future financing constraints lead firms to prefer investments with shorter payback periods, investments with less risk, and investments that utilize more liquid/pledgeable assets. These characteristics of investment are valuable because they help relax future financing constraints. We argue that this simple insight may help explain and reconcile empirical findings in different areas of corporate finance. Critically, it directs us to various promising topics for future research. As Modigliani and Miller (1958) show in their celebrated paper, corporate finance is interesting only to the extent that financing frictions of one form or another are present. Managers not only react to financing frictions when they occur, but they also anticipate future frictions and adjust their firms' policies so that the impact of these frictions is minimized. We have discussed a number of margins on which managers can make these adjustments. Undoubtedly, our stylized model understates the extent to which this type of behavior occurs. Additional work on the nature of these adjustments will likely lead to a more thorough understanding of corporate financial decisions.