Results 1 - 10
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78
Corporate Dividend Policies: Lessons from Private Firms
- Review of Financial Studies
, 2012
"... We compare the dividend policies of publicly and privately held firms in order to help identify the forces shaping corporate dividends, and shed light on the behavior of privately held companies. We show that private firms smooth dividends significantly less than their public counterparts, suggestin ..."
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Cited by 35 (2 self)
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We compare the dividend policies of publicly and privately held firms in order to help identify the forces shaping corporate dividends, and shed light on the behavior of privately held companies. We show that private firms smooth dividends significantly less than their public counterparts, suggesting that the scrutiny of public capital markets plays a central role in the propensity of firms to smooth dividends over time. Public firms pay relatively higher dividends that tend to be more sensitive to changes in investment opportunities than otherwise similar private firms. Ultimately, ownership structure and incentives play key roles in shaping dividend policies. (JEL G35, G32, G15) Miller and Modigliani (1961) show that dividend policy is irrelevant for firm value when markets are “perfect ” and investment is held constant. However, both empirical evidence (e.g., Allen and Michaely 2003) and survey evidence (Lintner 1956; Brav et al. 2005) suggest that dividend policy is anything but irrelevant to managers and markets. Rather, corporate dividend policies exhibit clear patterns. In particular, dividends are “smoothed ” and not often decreased, and investors react positively to dividend increases and negatively
Incentives to innovate and the decision to go public or private. Review of Financial Studies, forthcoming
, 2012
"... We model the impact of public and private ownership structures on …rms’incentives to choose innovative projects. Innovation requires the exploration of new ideas with potential advantages but unknown probability of success. We show that it is optimal to go public when …rms wish to exploit the curren ..."
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Cited by 24 (1 self)
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We model the impact of public and private ownership structures on …rms’incentives to choose innovative projects. Innovation requires the exploration of new ideas with potential advantages but unknown probability of success. We show that it is optimal to go public when …rms wish to exploit the current technology and to go private when …rms wish to explore new ideas. This result follows from the fact that privately-held companies are less transparent to outside investors than publicly-held ones. In private …rms, insiders can time the market by choosing an early exit strategy when they learn bad news. This option makes insiders more tolerant to failures and thus more inclined to choose innovative projects. However, in public …rms this option is less valuable because there is less information asymmetry concerning cash ‡ows. In such …rms, prices of publicly-traded securities react quickly to good news, providing insiders with incentives to choose conventional but safer projects, in order to cash in early when good news arrive. Extensions to the model allow us to incorporate other drivers of the decision to go public or private, such as liquidity and cost of capital considerations. Our model rationalizes recent evidence linking private equity to innovation and creative destruction and also generates new predictions concerning the determinants of going public and going private decisions.
Pay for Performance from Future Fund Flows: The Case of Private Equity
, 2012
"... Lifetime incomes of private equity general partners (GPs) are affected by their current funds ’ performance not only directly, through carried interest profit-sharing provisions, but also indirectly by the effect of the current fund’s performance on GPs ’ abilities to raise capital for future funds. ..."
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Cited by 22 (7 self)
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Lifetime incomes of private equity general partners (GPs) are affected by their current funds ’ performance not only directly, through carried interest profit-sharing provisions, but also indirectly by the effect of the current fund’s performance on GPs ’ abilities to raise capital for future funds. In the context of a rational learning model, which we show better matches the empirical relations between future fund-raising and current performance than behavioral alternatives, we estimate that indirect pay for performance from future fund-raising is of the same order of magnitude as direct pay for performance from carried interest. Consistent with the learning framework, indirect pay for performance is stronger when managerial abilities are more scalable and weaker when current performance is less informative about ability. Specifically, it is stronger for buyout funds than for venture capital funds, and declines in the sequence of a partnership’s funds. Total pay for performance in private equity is both considerably larger and much more heterogeneous than implied by the carried interest alone. Our framework can be adapted to estimate indirect pay for performance in other asset management settings.
2011): “Institutional demand pressure and the cost of corporate loans
- Journal of Financial Economics
"... Abstract Between 2001 and 2007, annual institutional funding in highly leveraged loans went up from $32 billion to $426 billion, accounting for nearly 70% of the jump in total syndicated loan issuance over the same period. Did the inflow of institutional funding in the syndicated loan market lead t ..."
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Cited by 18 (0 self)
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Abstract Between 2001 and 2007, annual institutional funding in highly leveraged loans went up from $32 billion to $426 billion, accounting for nearly 70% of the jump in total syndicated loan issuance over the same period. Did the inflow of institutional funding in the syndicated loan market lead to mispricing of credit? To understand this relation, we look at the institutional demand pressure defined as the number of days a loan remains in syndication. Using market-level and cross-sectional variation in time-on-the-market, we find that a shorter syndication period is associated with a lower final interest rate. The relation is robust to the use of institutional fund flow as an instrument. Furthermore, we find significant price differences between institutional investors' tranches and banks' tranches of the same loans, even though they share the same underlying fundamentals. Increasing demand pressure causes the interest rate on institutional tranches to fall below the interest rate on bank tranches. Overall, a one-standard-deviation reduction in average time-on-the-market decreases the interest rate for institutional loans by over 30 basis points per annum. While this effect is significantly larger for loan tranches bought by structured investment vehicles (CDOs), it is not fully explained by their role. JEL classification: G11, G14, G21, G22, G23
The Growth of Finance
- Journal of Economic Perspectives
, 2013
"... D uring the last 30 years, the fi nancial services sector has grown enormously. This growth is apparent whether one measures the fi nancial sector by its share of GDP, by the quantity of fi nancial assets, by employment, or by average wages. At its peak in 2006, the fi nancial services sector contri ..."
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Cited by 16 (0 self)
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D uring the last 30 years, the fi nancial services sector has grown enormously. This growth is apparent whether one measures the fi nancial sector by its share of GDP, by the quantity of fi nancial assets, by employment, or by average wages. At its peak in 2006, the fi nancial services sector contributed 8.3 percent to US GDP, compared to 4.9 percent in 1980 and 2.8 percent in 1950. The contribution to GDP is measured by the US Bureau of Economic Analysis (BEA) as value-added, which can be calculated either as fi nancial sector revenues minus nonwage inputs, or equivalently as profi ts plus compensation. Figure 1, following the methodology of Philippon (2012) and constructed from a variety of historical sources, shows that that the fi nancial sector share of GDP increased at a faster rate since 1980 (13 basis points of GDP per annum) than it did in the prior 30 years (7 basis points of GDP per annum).1 The growth of fi nancial services since 1980 accounted for more than a quarter of the growth of the services sector as a whole. Figure 1 shows 1 Online Appendix Table 1, which is available with this article at
2011), Did structured credit fuel the LBO boom
- Journal of Finance
"... We show that the recent leveraged buyout (LBO) boom was linked to the growth in collaterialized debt obligations (CDOs) and other forms of securitization. Banks that were active in structured credit underwriting lent more for LBOs indicating that bank lending was an important channel linking the LBO ..."
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Cited by 9 (0 self)
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We show that the recent leveraged buyout (LBO) boom was linked to the growth in collaterialized debt obligations (CDOs) and other forms of securitization. Banks that were active in structured credit underwriting lent more for LBOs indicating that bank lending was an important channel linking the LBO and CDO markets. LBO loans originated by large CDO underwriters were associated with lower spreads, weaker covenants, and greater use of bank debt in deal financing. Loans financed through the structured credit market did not lead to worse LBO deals, overpayment, or riskier deal structures. Our findings suggest that securitization markets altered banks ’ access to capital and affected their lending policies and offer an explanation for the recent LBO boom.
Venture Capital and Other Private Equity: A Survey
- European Financial Management
, 2011
"... Abstract We review the theory and evidence on venture capital (VC) ..."
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Cited by 8 (1 self)
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Abstract We review the theory and evidence on venture capital (VC)
Agency Problems in Public Firms: Evidence from Corporate Jets in Leveraged Buyouts
"... This paper uses novel data to examine the fleets of corporate jets operated by both publicly traded and privately held firms. In the cross-section, firms owned by private equity funds average 40 % smaller fleets than observably similar public firms. Similar fleet reductions are observed within firms ..."
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Cited by 7 (0 self)
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This paper uses novel data to examine the fleets of corporate jets operated by both publicly traded and privately held firms. In the cross-section, firms owned by private equity funds average 40 % smaller fleets than observably similar public firms. Similar fleet reductions are observed within firms that undergo leveraged buyouts. Quantile regressions indicate that these results are driven by firms in the upper 30 % of the conditional jet distribution. The results thus suggest that executives in a substantial minority of public firms enjoy excessive perquisite and compensation packages.
