Free Cash Flow and Takeover Threats: An Experimental Study.
A classic theory of corporate governance holds that when cash flow is high and investment opportunities scarce, takeover threats reduce managerial self-dealing and encourage dividend payment to owners. I conduct laboratory experiments studying the effect of cash flow on self-dealing and the effect o...
| Publicado en: | Southern Economic Journal Vol. 75; no. 2; pp. 351 - 367 |
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| Formato: | Artículo |
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Wiley-Blackwell
Oct2008
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| Acceso en línea: | Ver este registro en EBSCOhost |
| Sumario: | A classic theory of corporate governance holds that when cash flow is high and investment opportunities scarce, takeover threats reduce managerial self-dealing and encourage dividend payment to owners. I conduct laboratory experiments studying the effect of cash flow on self-dealing and the effect of takeover threats on both agency problems and the optimality of management of cash flows. I find that higher cash flow firms suffer more severe agency problems. Moreover I find that takeover threats reduce these problems in high cash flow firms but not low cash firms. Finally, I find evidence that takeover threats cause managers in low cash flow firms to make myopic withdraws to signal generosity. |
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