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Manchester Grand Hyatt, Seaport H
American Finance Association
New Perspectives on Raising and Measuring Capital
Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Sabrina T. Howell, New York University
Initial Public Offerings and the Local Economy
AbstractWe provide evidence that a firm’s transition from private to public ownership stunts local economic growth, but only for large IPOs located in relatively small local economies. After accounting for endogeneity in the ownership decision, areas hosting large companies that go public experience muted growth in employment, establishments, population, and wages, relative to areas where firms remain private. Establishment-level analyses and tests of IPO-filer acquisition activity reveal that transitioning to public ownership causes firms to geographically diversify their establishments and employee base. These findings are consistent with public ownership reducing a firm’s reliance on local agglomeration economies, to the detriment of the local community.
Measuring Intangible Capital with Market Prices
AbstractExisting standards prohibit disclosures of internally created intangible capital to firm balance sheets, resulting in a downward bias of reported assets. To address this issue, we use transaction prices to estimate this missing intangible capital. On average, our new estimates of intangible capital is 10% smaller than prior estimates, while varying more by industry. The estimates better explain market values, increase HML portfolio returns, act as a better proxy for human capital and brand rankings, and exhibit a strong association with patent values.
Corporate Cash Shortfalls and Financing Decisions
AbstractGiven their actual revenue and spending, most net equity issuers and an overwhelming majority of net debt issuers would face immediate cash depletion without external financing. Firms tend to issue debt to fund investment, and issue equity to fund persistent cash needs. On average, debt issuers immediately spend almost all of the proceeds, while equity issuers retain much of the proceeds in cash. Anticipated near-future cash needs and fixed costs of financing help explain the fraction of the proceeds being retained. Our findings support a funding-horizon theory in which cash needs and how the proceeds are used motivate financing decisions.
University of Chicago
Ohio State University
- G3 - Corporate Finance and Governance