Understanding Precautionary Cash at Home and Abroad

In the presence of market frictions, it is optimal for firms to stockpile cash to fund investment projects which may arise in the future. Prior work has documented that firms’ precautionary savings motives predict variation in the size of firms’ cash stockpiles. The dramatic run-up in cash stockpiles raises the question of why these precautionary motives have increased. In the presence of repatriation taxes, foreign and domestic cash are imperfect substitutes. We show that although precautionary motives explain variation in the level of cash held domestically, they provide little explanatory power for the level of foreign cash. Multinational firms’ foreign cash balances are instead explained by low foreign tax rates and the ability to transfer profits within the firm through related-party sales. The firms with the greatest incentive and ability to transfer income to low-tax jurisdictions do so, and this results in stockpiles of cash trapped in their foreign subsidiaries

Antenatal Magnesium and Cerebral Palsy in Preterm Infants

To evaluate the relationship of maternal antenatal magnesium sulfate (MgSO4) with neonatal cranial ultrasound abnormalities and cerebral palsy (CP)

Risk Management with Supply Contracts

Purchase obligations are forward contracts with suppliers and are used more broadly than traded commodity derivatives. This paper is the first to document that these contracts are a risk management tool and have a material impact on corporate hedging activity. Firms that expand their risk management options following the introduction of steel futures contracts substitute financial hedging for purchase obligations. Contracting frictions, such as bargaining power and settlement risk, as well as potential hold-up issues associated with relationship-specific investment, affect the use of purchase obligations in the cross-section, as well as how firms respond to the introduction of steel futures.GARP Risk Management Research Award Program24 month embargo; published online: 25 May 2017.This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at [email protected]

The role of risk management in mergers and merger waves

We show that merger activity and particularly waves are significantly driven by risk management considerations. Increases in cash flow uncertainty encourage firms to vertically integrate and this contributes to the start of merger waves. These effects are incremental to previously identified causes of wave activity. Our risk management hypothesis is further supported by cross-sectional differences in the likelihood that a firm vertically integrates, and by the post-acquisition characteristics of vertically integrating firms. These results are consistent with the view (from the industrial organization literature) that vertical integration is an operational hedging mechanism that reduces the cost of increased uncertainty.Merger waves Vertical integration Risk management

Fiduciary Standards and Institution’s Prefernece for Dividend-Paying Stock,” Working Paper (August 2005), available at http://ssrn.com/abstract=686966

Abstract Many researchers perceive that the "Prudent Man" standard for fiduciary responsibility causes institutional investors to prefer dividend-paying stocks. However, most states revised their fiduciary standards during the 1990s, replacing Prudent Man constraints with the less-stringent Prudent Investor rules for many institutional investors. We find that the introduction of the Prudent Investor standard is followed by an economically and statistically significant reduction in institutional holdings of dividendpaying stocks. If institutional investors should no longer be assumed to have an exogenous preference for dividend-paying stocks, some conclusions about security returns and corporate behavior from the 1990s may need to be re-considered

The cost of financial flexibility: Evidence from share repurchases

Over the last two decades, share repurchases have emerged as the dominant payout channel, offering a more flexible means of returning excess cash to investors. However, little is known about the costs associated with payout-related financial flexibility. Using a unique identification strategy, we document a significant cost. We find that actual repurchase investments underperform hypothetical investments that mechanically smooth repurchase dollars through time by approximately two percentage points per year on average. This cost of financial flexibility is correlated with earnings management, managerial entrenchment, and less institutional monitoring. (C) 2016 Elsevier B.V. All rights reserved.Available online 11 February 2016. 36 month embargo.This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at [email protected]

The Effect of Fiduciary Standards on Institutions' Preference for Dividend-Paying Stocks

"Many researchers apparently believe that some institutional investors prefer dividend-paying stocks because they are subject to the "prudent man" (PM) standard of fiduciary responsibility, under which dividend payments provide prima facie evidence that an investment is prudent. Although this was once accurate for many institutions, during the 1990s most states replaced the PM standard with the less-stringent "prudent investor" (PI) rule, which evaluates the appropriateness of each investment in a portfolio context. Controlling for the general decline in dividend-paying stocks, we find that institutions reduced their holdings of dividend-paying stocks by 2% to 3% as the PI standard spread during the 1990s. Studies of asset pricing and corporate governance should no longer consider dividend payments when evaluating the actions of institutional investors." Copyright (c) 2008 Financial Management Association International..