1、中文 3780 字 外 文 翻 译 原文 ： Over-investment of free cash flow This paper examines firm investing decisions in the presence of free cash flow. In theory, firm level investment should not be related to internally generated cash flows (Modigliani & Miller, 1958). However, prior research has documented a pos
2、itive relation between investment expenditure and cash flow (e.g., Hubbard, 1998). There are two interpretations for this positive relation. First, the positive relation is a manifestation of an agency problem, where managers in firms with free cash flow engage in wasteful expenditure (e.g.,Jensen 1
3、986； Stulz 1990). When managers objectives differ from those of shareholders, the presence of internally generated cash flow in excess of that required to maintain existing assets in place and finance new positive NPV projects creates the potential for those funds to be squandered. Second, the posit
4、ive relation reflects capital market imperfections, where costly external financing creates the potential for internally generated cash flows to expand the feasible investment opportunity set (e.g., Fazzari, Hubbard, & Petersen,1988； Hubbard, 1998). This paper focuses on utilizing accounting informa
5、tion to better measure the constructs of free cash flow and over-investment, thereby allowing a more powerful test of the agency-based explanation for why firm level investment is related to internally generated cash flows. In doing so, this paper is the first to offer large sample evidence of over-
6、investment of free cash flow. Prior research, such as Blanchard, Lopez-di-Silanes, and Vishny (1994), document excessive investment and acquisition activity for eleven firms that experience a large cash windfall due to a legal settlement, Harford (1999) finds using a sample of 487 takeover bids, tha
7、t cash-rich firms are more likely to make acquisitions that subsequently experience abnormal declines in operating performance, and Bates (2005) finds for a sample of 400 subsidiary sales from 1990 to 1998 that firms who retain cash tend to invest more, relative to industry peers. This paper extends
8、 these small sample findings by showing that over-investment of free cash flow is a systematic phenomenon across all types of investment expenditure. The empirical analysis proceeds in two stages. First, the paper uses an accounting-based framework to measure both free cash flow and over-investment.
9、 Free cash flow is defined as cash flow beyond what is necessary to maintain assets in place and to finance expected new investments. Over-investment is defined as investment expenditure beyond that required to maintain assets in place and to finance expected new investments in positive NPV projects
10、. To measure over-investment, I decompose total investment expenditure into two components: (i) required investment expenditure to maintain assets in place, and (ii) new investment expenditure. I then decompose new investment expenditure into over-investment in negative NPV projects and expected inv
11、estment expenditure, where the latter varies with the firms growth opportunities, financing constraints, industry affiliation and other factors. Under the agency cost explanation, management has the potential to squander free cash flow only when free cash flow is positive. At the other end of the sp
12、ectrum, firms with negative free cash flow can only squander cash if they are able to raise cheap capital. This is less likely to occur because these firms need to be able to raise financing and thereby place themselves under the scrutiny of external markets (DeAngelo, & Stulz, 2004； Jensen, 1986).
13、Consistent with the agency cost explanation, I find a positive association between over-investment and free cash flow for firms with positive free cash flow. For a sample of 58,053 firm-years during the period 19882002, I find that for firms with positive free cash flow the average firm over-invests
14、 20% of its free cash flow. Furthermore, I document that the majority of free cash flow is retained in the form of financial assets. The average firm in my sample retains 41% of its free cash flow as either cash or marketable securities. There is little evidence that free cash flow is distributed to
15、 external debt holders or shareholders. Finding an association between over-investment and free cash flow is consistent with recent research documenting poor future performance following firm level investment activity. For example, Titman, Wei, and Xie (2004) and Fairfield, Whisenant, and Yohn (2003
16、) show that firms with extensive capital investment activity and growth in net operating assets respectively, experience inferior future stock returns. Furthermore, Dechow, Richardson, and Sloan(2005) find that cash flows retained within the firm (either capitalized through accruals or invested in f
17、inancial assets) are associated with lower future operating performance and future stock returns. This performance relation is consistent with the over-investment of free cash flows documented in this paper. The second set of empirical analyses examine whether governance structures are effective in
18、mitigating over-investment. Prior research has examined the impact of a variety of governance structures on firm valuation and the quality of managerial decision making. Collectively, the ability of cross-sectional variation in governance structures to explain firm value and/or firm decision making
19、is relatively weak. Consistent with this, I find evidence that out of a large set of governance measures only a few are related to over-investment. For example, firms with activist shareholders and certain anti-takeover provisions are less likely to over-invest their free cash flow. The next section
20、 develops testable hypotheses concerning the relation between free cash flow and over-investment. Section 2 describes the sample selection and variable measurement. Section discusses empirical results for the over-investment of free cash flow. Section 4 contains empirical analysis examining the link
21、 between corporate governance and the over-investment of free cash flow, while section 5 concludes. 1. Free cash flow and over-investment This section describes in detail the various theories supporting a positive relation between investment expenditure and cash flow and then develops measures of free cash flow and over-investment that can be used to test the agency based explanation. 1.1. Explanations for a positive relation between investment expenditure and cash flow
