Marshall School of Business
701 Exposition Blvd., Ste. 701
Los Angeles, CA 90089
NBER Working Papers and Publications
|July 2007||Fundamentals, Market Timing, and Seasoned Equity Offerings|
with Harry DeAngelo, René M. Stulz: w13285
Firms conduct SEOs to resolve a near-term liquidity squeeze, and not primarily to exploit market timing opportunities. Without the SEO proceeds, 62.6% of issuers would have insufficient cash to implement their chosen operating and non-SEO financing decisions the year after the SEO. Although the SEO decision is positively related to a firm's market-to-book (M/B) ratio and prior excess stock return and negatively related to its future excess return, these relations are economically immaterial. For example, a 150% swing in future net of market stock returns (from a 75% gain to a 75% loss over three years) increases by only 1% the probability of an SEO in the immediately prior year. Strikingly, most firms with quintessential "market timer" characteristics fail to issue stock and a non-trivial ...
|July 2004||Dividend Policy, Agency Costs, and Earned Equity|
with Harry DeAngelo, Rene Stulz: w10599
Why do firms pay dividends? If they didn't their asset and capital structures would eventually become untenable as the earnings of successful firms outstrip their investment opportunities. Had they not paid dividends, the 25 largest long-standing 2002 dividend payers would have cash holdings of $1.8 trillion (51% of total assets), up from $160 billion (6% of assets), and $1.2 trillion in excess of their collective $600 billion in long-term debt. Their dividend payments prevented significant agency problems since the retention of earnings would have given managers command over an additional $1.6 trillion without access to better investment opportunities and with no additional monitoring. This logic suggests that firms with relatively high amounts of earned equity (retained earnings) are esp...
Published: DeAngelo, Harry, Linda DeAngelo and Rene Stulz. “Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory.” Journal of Financial Economics 81, 2 (2006): 227-254.