1、1990 单词 ,3470 汉字 出处 : Scott A.Richardson,2006. “Over-investment of free cash flow” .Review of Accounting Studies, vol.11, no.2-3,Novemer,pp.159-189. 外 文 翻 译 原文： Over-investment of free cash flow Introduction This paper examines firm investing decisions in the presence of free cash flow. In theory, f
2、irm level investment should not be related to internally generated cash flows (Modigliani and Miller, 1958). However, prior research has documented a positive relation between investment expenditure and cash flow (e.g., Hubbard, 1998). There are two interpretations for this positive relation. First,
3、 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 1986 and Stutz 1990). When managers objectives differ from those of shareholders, the presence of internally generated cash flow in excess of that
4、required to maintain existing assets in place and finance new positive NPV projects creates the potential for those funds to be squandered. Second, the positive relation reflects capital market imperfections, where costly external financing creates the potential for internally generated cash flows t
5、o expand the feasible investment opportunity set (e.g., Fazzari, Hubbard and Petersen 1988 and Hubbard, 1998). The empirical analysis proceeds in two stages. First, the paper uses an accounting based framework to measure both free cash flow and over-investment. Free cash flow is cash flow beyond wha
6、t 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. To measure over- investment, I decompose total i
7、nvestment 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 investment expenditure, where the latter varies with
8、 the firms growth opportunities, financing constraints, industry affiliation and other factors. Explanations for a positive relation between investment expenditure and cash flow This section describes in detail the various theories supporting a positive relation between investment expenditure and ca
9、sh flow and then develops measures of free cash flow and over- investment that can be used to test the agency based explanation. In a world of perfect capital markets there would be no association between firm level investing activities and internally generated cash flows. If a firm needed additiona
10、l cash to finance an investment activity it would simply raise that cash from external capital markets. If the firm had excess cash beyond that needed to fund available positive NPV projects (including options on future investment) it would distribute free cash flow to external markets. Firms do not
11、, however, operate in such a world. There are a variety of capital market frictions that impede the ability of management to raise cash from external capital markets. In addition, there are significant transaction costs associated with monitoring management to ensure that free cash flow is indeed di
12、stributed to external capital markets. In equilibrium, these capital market frictions can serve as a support for a positive association between firm investing activities and internally generated cash flow. Primary hypothesis As described in the earlier section, in a world of perfect capital markets
13、(no frictions for raising external finance, no information asymmetries and associated moral hazard problems, no taxes etc.), there should be no association between firm level investment and internally generated cash flows. However, when it is costly for external capital providers to monitor manageme
14、nt, and it is costly for the firm to raise external finance, an association is expected. Specifically, there should be a positive relation between firm level investment expenditure and internally generated cash flows. This relation, however, could be due to several factors. It could reflect manageme
15、nt engaging in additional investment on self-serving projects rather than distribute the cash to shareholders. Such decisions can include: (i) empire building, (ii) perquisite consumption, (iii) diversifying acquisitions, and (iv) subsidizing poorly performing divisions using the cash generated from
16、 successful ones instead of returning the cash to shareholders. Alternatively, it could reflect the increased investment opportunity set from (relatively less costly) internal financing sources. Uses of free cash flow The focus of this paper is the over-investment of free cash flow. However, over- i
17、nvestment is but one of many alternate uses of free cash flow. Using information obtained from the statement of cash flows, I am able to allocate free cash flow flows into six categories. This is simply a re-characterization of the statement of cash flows, where cash generated must equal cash used.
18、The six categories are: (i) over-investment, INEW, (ii) net payments to shareholders, Equity, (iii) net principal payments to debt-holders, Debt, (iv) net change in financial assets, Financial Asset, (v) Other Investments and (vi) miscellaneous cash flows, Other. This is represented by the following
19、 identity: FCF I + Equity + Debt + Financial Asset + Other Investments + Other The final two categories contain miscellaneous reconciling items that are not important empirically (very little variation in the sample). The main concern from the perspective of shareholders is the first category, over-
20、investment, because this imposes substantial agency costs on shareholders. However, it is less clear what the best use of free cash flow is beyond avoiding over-investment. Payments to shareholders will be affected by the tax status of the firms investor base (Allen and Michaely, 2003). In addition
21、payments to both shareholders and debt- holders will impact the capital structure of the firm. To the extent that management has an optimal capital structure in mind. It is not clear what the optimal distribution of free cash flow will be. Retention of free cash flow in the form of financial assets is also an option available to management. The optimal level of free cash flow to be retained will be a
