Behavioral Corporate Finance － Models of

Transcript:Behavioral Corporate Finance － Models of:
Behavioral Corporate Finance － Models of Investor’s Irrationality 1 Outline Introduction DeAngelo et al. (2010) SEO proceeds, issuer characteristics, and estimated issuance probability Logit analysis The need for external finance Polk and Sapienza (2009) Investment and mispricing 2 Outline Discretionary accruals and investment Cross-sectional tests Efficient or inefficient investment? 3 Introduction An important strand of research on behavioral corporate finance asks whether irrational investors affect the financing and investment decisions of firms. The financing decisions 1. Stein (1996) provides “market timing” view in issuing new equity: when a firm’s stock price is too high, the rational manager should issue more shares so as to take advantage of investor exuberance. Conversely, when the price is too low, he should repurchase shares. 4 Introduction 2. Empirical evidence At the aggregate level. The share of new equity issues among total new issues is higher when the overall stock market is more highly valued. Baker and Wurgler (2000) show that the equity share is a reliable predictor of future stock returns: a high share predicts low, and sometimes negative stock returns. At the individual firm level. B/M ratio of a firm is a good cross-sectional predictor of new equity issues. Baker and Wurgler (2002) show that firms with high 5 Introduction valuations issue more equity while those with low valuations repurchase their shares. Long-term stock returns after an IPO or SEO are low, while long-term returns after a repurchase are high. Baker and Wurgler (2002) show that a firm’s weighted-average historical market-to-book ratio is a good cross-sectional predictor of the fraction of equity in the firm’s capital structure. The investment decisions 1.The critical question is whether the investor sentiment 6 Introduction affects actual investment decisions. There are several channels through which sentiment might affect investment. Equity-dependent firms (Baker and Wurgler 2003) Investor sentiment may distort investment for equity-dependent firms. When investors are excessively pessimistic, such firms may have to forgo attractive investment opportunities. As a result, it predicts that the investment of equity-dependent firms should be more sensitive to gyrations in stock price than the investment of non-equity dependent firms. 7 Introduction Managers might use investor exuberance as a cover for doing negative NPV “empire building” projects. Managers who do not take the projects investors perceive as profitable may encounter the threat of takeover or being fired. Managers put some weight on investors’ opinions. 2. Empirical evidence Early studies produced little evidence of investment