The average cash to assets ratio for U.S. industrial firms increases by 129 % from 1980 to 2004. Because of this increase in the average cash ratio, firms at the end of the sample period can pay back all of their debt obligations with their cash holdings, so that the average firm has no leverage when leverage is measured by net debt. This change in cash ratios and net debt is the result of a secular trend rather than the outcome of the recent buildup in cash holdings of some large firms, but is more pronounced for firms that do not pay dividends. The average cash ratio increases over the sample period because firms change: their cash flow becomes riskier, they hold fewer inventories and accounts receivable, and are increasingly R&D intensive. The precautionary motive for cash holdings appears to explain the increase in the average cash ratio. Considerable media attention has been devoted to the increase in cash holdings of U.S. firms. For instance, a recent article in the Wall Street Journal states that “The piles of cash and stockpile of repurchased shares at [big U.S. companies] have hit record levels”. 1 In this paper, we investigate how the cash holdings of American firms have evolved since 1980 and whether existing models of cash holdings help explain this evolution. We find that there is a secular increase in the cash holdings of the typical firm from 1980-2004. In a regression of the average cash-to-assets ratio on a constant and time, time has a

Not necessarily. The fundamental value of a firm increases with uncertainty about average future profitability, and this uncertainty was unusually high in the late 1990s. We calibrate a stock valuation model that includes this uncertainty, and compute the level of uncertainty that is needed to match the observed Nasdaq valuations at their peak. This uncertainty seems plausible because it matches not only the high level but also the high volatility of Nasdaq stock prices. We also show that uncertainty about average profitability has the biggest effect on stock prices when the equity premium is low.

We argue that time variation in the maturity of corporate debt arises because firms behave as macro liquidity providers, absorbing the supply shocks associated with changes in the maturity structure of government debt. We document that when the government funds itself with more short-term debt, firms fill the resulting gap by issuing more long-term debt, and vice-versa. This type of liquidity provision is undertaken more aggressively: i) when the ratio of government debt to total debt is higher; and ii) by firms with stronger balance sheets. Our theory sheds new light on market timing phenomena in corporate finance more generally.

We argue that the number of firms going public changes over time in response to time variation in market conditions. We develop a model of optimal IPO timing in which IPO waves are caused by declines in expected market return, increases in expected aggregate profitability, or increases in prior uncertainty about the average future profitability of IPOs. We test and find support for the model's empirical predictions. For example, we find that IPO waves tend to be preceded by high market returns and followed by low market returns.

We investigate how the age of an organization affects its life expectancy. Few, if any, firms survive over time. The main problem is takeover rather than financial failure. Most firms disappear because they are recycled in other firms. Takeover hazard initially declines, and then intensifies as firms grow older. This phenomenon is unrelated to management and industry age, and particularly intensive in high-tech, research-, and capital-intensive industries. Firms seem to have an aging problem. When they get older they increasingly seek outside help to function. The evidence is consistent with a corporate life cycle.

We investigate the long-term effect of the Asian financial crisis on corporate cash holdings in eight East Asian countries. The mean (median) cash to assets ratio for the Asian firms increases to 16.6 % (12.2%) in 2005 from 10.7 % (6.6%) in 1996. The sudden increase of the firms ’ cash holdings after the crisis is pervasive regardless of firm size, dividend payout, and profitability. Asian firms show a higher propensity to save cash out of their cash flows (the higher cash flow sensitivity of cash) after the crisis regardless of financial distress. We find that the increase in cash holdings is related to the firms ’ increased sensitivities to cash flow risk or stock return volatility. The financial crisis has systematically changed the cash holding policies of the Asian firms over the long-term. These findings are partially consistent with the precautionary motive of cash holdings in that the firms increase cash holdings to better manage their risk after they experience exogenous shocks of the Asian financial crisis. JEL classification: G3; G32

Abstract: This paper investigates determinants and consequences of net asset value discounts in listed private equity funds. Listed private equity funds share characteristics of closed-end mutual funds and traditional unlisted private equity funds and can therefore offer insights into both. Our results have particular relevance to the pricing of unlisted private equity funds where no market prices are observable. We find that funds start at an initial premium of-2.5 % and adapt to the long-term average of-21 % after two years. Fund returns display a new and puzzling U-shaped seasonality and an exceptionally weak stock performance in buyout funds after their initial public offering. Premia predict future returns and are explained by liquidity but not by investor sentiment or the fund’s investment degree. Private equity fund premia seem to depend on credit markets and systematic risk. This relation suggests that some information about the fund’s portfolio is not reflected in net asset values.

This paper empirically evaluates the effects of NASDAQ’s $1-minimum-bid-price threshold (known as the one-dollar rule) as part of its listing maintenance criteria. Even though this controversial rule was introduced as early as in September 1991, it remained unexplored by academic research. Empirical evidence compiled in this study suggests that the implementation of this one-dollar rule is justified: (i) NASDAQ stocks frequently trading below $1 during the pre-rule period are extremely vulnerable to catastrophic losses; (ii) there is a dramatic decline in extreme downside price movements in stocks trading below $1 after the rule was introduced; and (iii) the $1 benchmark serves as an appropriate cutoff point because a large difference in extreme downside price movements is observed between the stocks trading below and above $1.

Our paper examines IPO survival rates on the junior segment of the London Stock Exchange, the Alternative Investment Market (AIM), in response to allegations that AIM is a ‘casino ’ characterized by high rates of delisting among newly floated stocks. Using data of AIM IPOs from the opening of the market in 1995 until 2004, and tracking these IPOs until July 2009, we find survival rates are broadly in line with those of North American IPOs up to three years post-IPO but higher thereafter. Investigating the determinants of survival rates (and times), our study seeks to answer whether and to what extent regulators may improve the survivability of AIM IPOs by tightening the comparatively lax listing rules on AIM. We identify four regulatory levers in terms of (minimum) requirements on public float, firm age (or trading record), size (i.e., market capitalization) and the role (reputation) of the nominated advisors (Nomad) to the issuing company. We find that three of these levers (firm age, size, and Nomad reputation) have a statistically and economically significant impact on survival times. Our results on the significant adverse impact on survival of IPO timing during a hot market provide a rationale for regulators to try and curb the influx of IPOs during hot periods.

As firms grow older, their profitability seems to decline. We first document this phenomenon and show that it is very robust. Then we offer two non-exclusive explanations of why firms may age. First, corporate aging could reflect a cementation of organizational rigidities over time. Consistent with that, costs rise, growth slows, assets become obsolete, and investment and R&D activities decline. Second, older age could advance the diffusion of rent-seeking behavior inside the firm. This hypothesis is supported by the poorer governance, larger boards, and higher CEO pay we observe in older firms. Overall, firms seem to face a real senescence problem.