Ownership, Liquidity, and Investment

Hadlock, Charles J.

doi:10.2307/2556101

Cited by 155 publications

(179 citation statements)

References 9 publications

Supporting

Mentioning

139

Contrasting

Unclassified

Order By: Relevance

“…We relate our results to recent theories that to a large degree explain companies' investment rates, the cash constraint and the management discretion theory (Hadlock (1998)) or the free cash flow theory of Jensen (1986). The cash constraints theory relates investment rates to hard budget constraints whereas the management discretion theory and the free cash flow theory relates them to the abusive use of funds by the management to build empires and to increase their private welfare to the detriment of the value of the company or to soft budget constraints.…”

Section: Introductionmentioning

confidence: 73%

The impact of equity ownership groups on investment: Evidence from Ukraine

Mykhayliv

Zauner

2017

Economic Modelling

View full text Add to dashboard Cite

show abstract

Section: Introductionmentioning

confidence: 73%

The impact of equity ownership groups on investment: Evidence from Ukraine

Mykhayliv

Zauner

2017

Economic Modelling

View full text Add to dashboard Cite

show abstract

“…Vogt, 1994;Hadlock, 1998;Morgado and Pindado, 2003), we use multiple criteria to identify whether investment-cash flow sensitivity is caused by asymmetric information or it results from the agency cost of free cash flow. To achieve our objective, we analyze the influence of ownership and control structures, growth opportunities and a firm's technical efficiency of deploying its assets on the relationship between the investment level and liquidity.…”

Section: Overinvestmentmentioning

confidence: 99%

“…4 Relatively few papers test the investment-liquidity relation in a corporate governance framework. Recent exceptions include Kathuria and Mueller (1995), Hadlock (1998), and Gugler and Yurtoglu (2003), for the US, Gugler (2003) for Austria, Haid and Weigand (2001) for Germany, Degryse and de Jong (2000) for the Netherlands, Pindado and de la Torre (2004) for Spain, and Goergen and Renneboog (2001) for the UK.…”

Section: Overinvestmentmentioning

confidence: 99%

Is Investment-Cash Flow Sensitivity Caused by the Agency Costs or Asymmetric Information? Evidence from the UK

Pawlina

Renneboog

2005

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…Inferior knowledge about the quality of the management and its investment decisions by the capital markets may be the reason why a premium on external capital is required and why an underinvestment problem arises. When insider ownership grows and managerial interests become more and more aligned with those of the other shareholders, managers internalise more of the mispricing of external funds (Hadlock, 1998). Consequently, the underinvestment problem becomes worse as managers are increasingly reluctant to reward external capital with an excessive premium.…”

Section: 1 T Y P E S O F I N V E S T M E N T M O D E L Smentioning

confidence: 99%

Corporate Investment, Asymmetric Information and Agency Costs in the UK

Goergen¹,

Renneboog²

2001

VJH

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. By Marc G o e r g e n * and Luc R e n n e b o o g ** Terms of use: Documents in SummaryThis paper investigates whether investment spending of firms is sensitive to the availability of internal funds. Imperfect capital markets create a hierarchy for the different sources of funds such that investment and financial decisions are not independent. The relation between corporate investment and free cash flow is investigated using the Bond and Meghir (1994a) Euler-equation model for a panel of 240 companies listed on the London Stock Exchange over a 6-year period. This method allows for a direct test of the firstorder condition of an intertemporal maximisation problem. It does not require the use of Tobin's q, which is subject to mis-measurement problems. Apart from past investment levels and generated cash flow, the model also includes a leverage factor which captures potential bankruptcy costs and the tax advantages of debt. More importantly, we investigate whether ownership concentration by class of shareholder creates or mitigates liquidity constraints.Control is expected to influence the investment financing relation for two reasons. First, due to asymmetric information, the link between liquidity and investment could be a symptom of underinvestment. Firms pass up some projects with positive net present values because of the inflated cost of external funds. Second, from an agency perspective, external funds may not be too expensive but internal funds (free cash flow) may be too inexpensive from the manager's perspective. Whereas high insider ownership concentration reduces the liquidity constraints induced by agency costs, high insider shareholding concentration increases the liquidity constraints in the case of asymmetric information. It is expected that the induced liquidity constraints due to insider ownership are substantially reduced when outside investors control a substantial share stake and have therefore an increased propensity to monitor management. When industrial companies control large shareholdings, there is evidence of increased overinvestment. This suggests that industrial companies are able to influence investment spending. In contrast, large institutional holdings reduce the positive link between investment spending and cash flow relation and hence suboptimal investing. Whereas there is no evidence of over-or underinvesting at low levels of insider shareholding, a high concentration of control in the hands of executive directors creates a...

show abstract

Ownership, Liquidity, and Investment

Cited by 155 publications

References 9 publications

The impact of equity ownership groups on investment: Evidence from Ukraine

The impact of equity ownership groups on investment: Evidence from Ukraine

Is Investment-Cash Flow Sensitivity Caused by the Agency Costs or Asymmetric Information? Evidence from the UK

Corporate Investment, Asymmetric Information and Agency Costs in the UK

Contact Info

Product

Resources

About