학술대회/행사
학술대회안내
[2008년 제 4차] Contract Heterogeneity, Operating Shortfalls and Co
작성자 : 관리자
조회수 : 1109
게시일 :
2008-12-11
In this research we show that contract heterogeneity and operating shortfall, defined as a positive probability of negative operating earnings, provide an explanation for corporate cash holdings. Specifically, we distinguish between securities that the firm issues to the providers of financial capital (investors) and non-traded “factor contracts” that it issues to the suppliers of non-financial inputs (“factors”). We show that when there is a potential for an operating earnings shortfall: a) holding cash is an optimal (cheapest) way by which the firm can provide the factors their competitive payoffs, b) the magnitude of the optimal cash holdings is equal to the present value of the maximum potential (not expected) operating shortfall, and c) there will be a “corporate cash discount,” in the sense that each dollar of cash held in the firm will be valued in the markets at less than a dollar. Using U.S. data from 1980-2006, we find that the empirical evidence is strongly supportive of our cash rationale, and of our explanations for the magnitude of cash holdings and the cash discount.