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71. Cash Flow Hedging and Liquidity Choices*.

Author

Disatnik, David, Duchin, Ran, and Schmidt, Breno

Subjects
HEDGE funds, LIQUIDITY (Economics), CORPORATE finance, COST effectiveness, ACQUISITION of data, CASH flow
Abstract

This article studies the interaction between corporate hedging and liquidity policies. We present a theoretical model that shows how corporate hedging facilitates greater reliance on cost-effective, externally provided liquidity in lieu of internal resources. We test the model’s predictions by employing a new empirical approach that separates cash flow hedging from other hedging instruments. Using detailed, hand-collected data, we find that cash flow hedging reduces the firm’s precautionary demand for cash and allows it to rely more on bank lines of credit. Furthermore, we find a significant positive effect of cash flow hedging on firm value, where prior evidence is mixed. [ABSTRACT FROM AUTHOR]

Published
2014
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72. Cash holdings and corporate diversification

Author

Duchin, Ran, Marshall School of Business, DeAngelo, Harry; Officer, Micah; Ozbas, Oguzhan; Sensoy, Berk; James, Gareth, Duchin, Ran, Marshall School of Business, and DeAngelo, Harry; Officer, Micah; Ozbas, Oguzhan; Sensoy, Berk; James, Gareth

Subjects
circa 1990/2004, 1989; 1990; 1991; 1992; 1993; 1994; 1995; 1996; 1997; 1998; 1999; 2000; 2001; 2002; 2003; 2004; 2005, United States., United States.
Abstract

Unrestricted, This study documents a strong connection between corporate cash holdings and organization form, and explores why such a relation exists. Over the period 1990-2004, U.S. multi-division firms held 39 percent less cash as a fraction of assets than stand-alone firms, and the difference persists after controlling for firm size, capital structure, cash flows, growth opportunities and investments. To explain the difference, I study the determinants of cash holdings in a sample of 10,380 firms over 1990-2004 and find that (a) correlations between divisional cash flows or investment opportunities completely explain the relation between cash holdings and organization form and (b) their effect is big: an increase of one standard deviation in the correlations between cash flows (investment opportunities) implies an increase of 13 percent (10 percent) in cash holdings of the average firm. This suggests that corporate diversification can serve as a way to economize on cash. The paper also documents a substantial increase in average cross-divisional correlations from 1990 to 2004, which might explain why diversified firms hold more cash than they used to.

73. Peer Effects inside the Firm and the Diffusion of Managerial Pay.

Author

Goldberg, Amir, Duchin, Ran, and Sosyura, Denis

Abstract

Using hand-collected data on divisional managers at S&P 1500 firms, we study how changes in one divisional manager's compensation affect the compensation of other divisional managers inside the same conglomerate. Our identification exploits industry shocks to managerial pay in select divisions, such as the discovery of shale gas deposits. A pay increase for a manager affected by the industry shock generates large within-firm spillovers on the pay of other divisional managers, who receive pay raises of 54-87 cents for each dollar increase in the treated manager's pay. These spillovers operate only within firm boundaries and are non-existent for the same industry pairs in stand-alone firms. The intra-firm convergence in executive pay is associated with weaker governance and lower firm value. Overall, our findings highlight how peer-effects within organizations contribute to the overall diffusion of high managerial pay. [ABSTRACT FROM AUTHOR]

Published
2014
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