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What do firms do with cash windfalls?

Author: Olivier Blanchard; Florencio Lopez-de-Silanes; Andrei Shleifer; National Bureau of Economic Research.
Publisher: Cambridge, MA : National Bureau of Economic Research, [1993]
Series: Working paper series (National Bureau of Economic Research), working paper no. 4258.
Edition/Format:   eBook : Document : EnglishView all editions and formats
Database:WorldCat
Summary:
Abstract: Suppose that a firm receives a cash windfall which does not change its investment opportunity set, or equivalently its marginal Tobin's Q. What will this firm do with the money? We provide empirical answers to this question using a sample of firms with such windfalls in the form of a won or settled lawsuit. We examine a variety of decisions of the firm to shed light on alternative theories of corporate  Read more...
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Material Type: Document, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Olivier Blanchard; Florencio Lopez-de-Silanes; Andrei Shleifer; National Bureau of Economic Research.
OCLC Number: 70046989
Notes: "January 1993."
Description: 1 online resource (26, [23] pages).
Series Title: Working paper series (National Bureau of Economic Research), working paper no. 4258.
Responsibility: Olivier J. Blanchard, Florencio López-de-Silanes, Andrei Shleifer.

Abstract:

Abstract: Suppose that a firm receives a cash windfall which does not change its investment opportunity set, or equivalently its marginal Tobin's Q. What will this firm do with the money? We provide empirical answers to this question using a sample of firms with such windfalls in the form of a won or settled lawsuit. We examine a variety of decisions of the firm to shed light on alternative theories of corporate financing and investment. Our evidence is broadly inconsistent with the perfect capital markets model. The results need to be stretched considerably to fit the asymmetric information model in which managers act in the interest of shareholders. The evidence supports the agency model of managerial behavior, in which managers try to ensure the long run survival and independence of the firms with themselves at the helm.

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