The Effects of Securities Class Action Litigation on Corporate Liquidity and Investment Policy

The risk of securities class action litigation alters corporate savings and investment policy. Firms with greater exposure to securities litigation hold significantly more cash in anticipation of future settlements and other related costs. The result is due to firms accumulating cash in anticipation of lawsuits and not a consequence of plaintiffs targeting firms with high cash levels. The market value of cash is significantly lower for firms exposed to litigation risk. Corporate investment decisions are also affected by litigation risk, as firms reduce capital expenditures in response. Our results are robust to endogeneity concerns and possible spurious temporal effects

What Determines the Structure of Corporate Debt Issues?

Publicly-traded debt securities differ on a number of dimensions, including quality, maturity, seniority, security, and convertibility. Finance research has provided a number of theories as to why firms should issue debt with different features; yet, there is very little empirical work testing these theories. We consider a sample of 14,867 debt issues in the U.S. between 1971 and 2004. Our goal is to test the implications of these theories, and, more generally, to establish a set of stylized facts regarding the circumstances under which firms issue different types of debt. Our results suggest that there are three main types of factors that affect the structure of debt issues: First, firm-specific factors such as leverage, growth opportunities and cash holdings are related with the convertibility, maturity and security structure of issued bonds. Second, economy-wide factors, in particular the state of the macroeconomy, affect the quality distribution of securities offered; in particular, during recessions, firms issue fewer poor quality bonds than in good times but similar numbers of high-quality bonds. Finally, controlling for firm characteristics and economy-wide factors, project specific factors appear to influence the types of securities that are issued. Consistent with commonly stated 'maturity-matching' arguments, long-term, nonconvertible bonds are more likely to be issued by firms investing in fixed assets, while convertible and short-term bonds are more likely to finance investment in R&D.

Litigation Risk Management Through Corporate Payout Policy

Firms modify their payout policy in anticipation of future litigation costs. We examine a comprehensive sample of U.S. corporate lawsuits and find that firms facing significant litigation risk pay lower dividends, and in some cases omit dividends while distributing more cash through share repurchases. Litigation risk changes the distribution of payouts but not the total payout yield as the increase in share repurchases offsets the decrease in dividends. Cash-poor firms cut share repurchases when settlement costs are incurred. The results suggest that firms at a higher risk of litigation increase their payout flexibility

Firm Size and Corporate Investment

We provide robust empirical evidence of size effects in corporate investments. Small firms have significantly higher investment rates than large firms, even after controlling for standard empirical proxies of firm real investment opportunities and financial status, including Tobin’s Q and cash flow. Firm size is at least as important as Tobin’s Q and cash flow, both economically and statistically, in explaining variation in corporate investments. Unlike the cash flow effect, however, the size effect is robust to measurement error in Tobin’s Q. Contrary to common wisdom, the empirical evidence suggests that firm size improves the measurement of firms’ real investment opportunities rather than reflecting differences in firms’ financing frictions. Using simulated method of moments, we estimate a neoclassical model of investment and show that technological decreasing returns to scale, along with measurement error in Tobin’s Q, replicates successfully the empirical evidence on size effects

Macroeconomic Conditions and Capital Raising

Economic theory, as well as commonly-stated views of practitioners, suggests that macroeconomic conditions can affect both the ability and manner in which firms raise external financing. Theory suggests that downturns should be associated with a shift toward less information-sensitive securities, as well as a ‘flight to quality,’ in which firms can issue high-rated securities but not low-rated ones. We evaluate these hypotheses on a large sample of publicly-traded debt issues, seasoned equity offers, and bank loans. We find that worse macroeconomic conditions lead firms to use less information-sensitive securities. In addition, poor market conditions affect the structure of securities offered, shifting them towards shorter maturities and more security. Furthermore, market conditions affect the quality of securities offered, with worsening conditions substantially lowering the number of low-rated debt issues. Overall, these findings suggest that macroeconomic conditions are important factors in firms’ capital raising decisions.Market downturns; Security choice; Maturity; Security

The Distribution of Firm Size and Aggregate Investment

We investigate empirically how the distributional dynamics of firm investment rates and firm size affect aggregate US investment during the period 1962-2006. We find that the cross-sectional covariation between firms’ investment rates and their relative size accounts on average for about half of aggregate investment rate. The negative sign of this covariance implies that a mean-preserving increase in the cross-sectional dispersion of investment rates and/or relative size reduces aggregate investment rate. We investigate the implications of firm-level conditional convergence in corporate investment rates on the dynamics of aggregate investment. We identify the cross-sectional variance of firm relative size as being particularly relevant to explain aggregate investment dynamics. With aggregate NIPA investment data, the cross-sectional variance of firm size fits the investment equation better than the traditional measure of Tobin’s Q and it drives out cash flow

Understanding Extraordinary Architectural Experiences through Content Analysis of Written Narratives

This study a) identifies how people describe, characterize, and communicate in written form Extraordinary Architectural Experiences (EAE), and b) expands the traditional qualitative approach to architectural phenomenology by demonstrating a quantitative method to analyze written narratives. Specifically, this study reports on the content analysis of 718 personal accounts of EAEs. Using a deductive, ‘theory-driven' approach, these narratives were read, coded, and statistically analyzed to identify storyline structure, convincing power, and the relationship between subjective and objective experiential qualities used in the story-telling process. Statistical intercoder agreement tests were conducted to verify the reliability of the interpretations to approach the hard problem of "extraordinary aesthetics” in architecture empirically. The results of this study confirm the aesthetic nature of EAE narratives (and of told experiences) by showing their higher dependence on external objective content (e.g., a building's features and location) rather than its internal subjective counterpart (e.g., emotions and sensations), which makes them more outwardly focused. The strong interrelationships and intercoder agreement between the thematic realms provide a unique aesthetic construct revealing EAE narratives as memorable, embodied, emotional events mapped by the externally focused content of place, social setting, time, and building features. A majority of EAE narratives were found to possess plot-structure along with significant relationships to objective-subjective content that further grounded their storylines. This study concludes that content analysis provides not only a valid method to understand written narratives about extraordinary architectural experiences quantitatively, but also a view as to how to map the unique nature of aesthetic phenomenology empirically

Extraordinary experiences of sacred architecture: The cases of Chartres, Ronchamp and the Pantheon

Usando casi 2.900 respuestas a una encuesta sobre "Experiencias Arquitectónicas Extraordinarias" (EAEs) como un mapa estadístico de la dimensión subjetiva de arquitecturas excepcionales, este artículo se enfoca en tres obras religiosas paradigmáticas citadas en el sondeo: el Panteón, la Catedral de Chartres, y la Capilla de Ronchamp. El propósito es establecer (a) el carácter experiencial único (extraordinario y sagrado) de cada obra; (b) una comparación entre ellas con relación a las EAEs en general; y (c) posibles vínculos entre respuesta subjetiva y los factores empíricos de lo construido. La taxonomía hermenéutica de arquitectura sagrada de Lindsay Jones (2000) es usada para articular el análisis interpretativo de la información y relaciones descubiertas. Se concluye que el Panteón induce experiencias espirituales usándose a sí mismo como modus operandi contemplativo, mientras que Chartres lo logra combinando estrategias teatrales y contemplativas, y Ronchamp su calidad de santuario y naturaleza estética contemplativa.Using nearly 2,900 entries to a survey on ‘Extraordinary Architectural Experiences’ (EAEs) as a general background mapping of the ‘subjective side’ of exceptional architecture, this article focuses on three paradigmatic religious buildings cited in the survey: the Pantheon, Chartres Cathedral, and the chapel of Ronchamp. The purpose is to establish (a) the unique (sacred and extraordinary) phenomenological signature of each building; (b) a comparative analysis between them and in relation to EAEs in general; and (c) possible links between subjective responses and the buildings’ empirical aspects. Lindsay Jones’ hermeneutical taxonomy for associating built form and religious experience in sacred architecture is used to articulate the information and relationships revealed. The conclusion is reached that while the Pantheon induces spiritual experiences using itself as contemplative apparatus, Chartres achieves the same purpose by combining theatrical and contemplative strategies, whereas Ronchamp makes use of its sanctuary quality and aesthetic-contemplative nature