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Investment Choices
What are the determinants?
What are the approaches adopted by firms?
Rules
Cost of capital
What approaches can we use to answer these questions?
Regression analysis
Survey
Case study

Survey Design
Steps in survey design
Establish the goals of the project
What do you want to learn/test
Determine your sample
Who will you interview (size, relevance, access)
Choose delivery options
Ease and response rate
Create your questionnaire
What you will ask (ambiguity, validation, ..)
Pre-test the survey (small sample plus focus group)

Determinants of Investment Choices
Investment expenditure and
Tobin’s q (average and marginal) – as a measure of investment opportunity set
Result weak
Cash flow
Positive relationship
Financial constraint
Negative relationship
Stock price – private information
Positive relationship
Governance
Positive relationship

Decision Rules本论文由英语论文网 www.51lunwen.org整理提供
% of firms using:
NPV 74.9%
IRR 75.7%
Large, public, highly levered, dividend paying firms more likely to use NPV and IRR
Payback period, hurdle rate and sensitivity analysis used by 50% of firms
Payback common amongst small firms
Not a risk story

Cost of Capital
Estimating discount rate
73% of firms use CAPM to calculate cost of equity
Large, public, lowly levered firms more likely to use it

“Additional” Risk Factors
Adjust cash flows
Business cycle risk
Inflation risk
Foreign currency risk
Adjust discount rate for:
Interest rate risk
Inflation risk
Foreign currency risk
Size

How Do We Interpret These Results?
Look to the sample selection process
How generalizable?本论文由英语论文网 www.51lunwen.org整理提供
Where is the firm’s investment decision making process set?
By CFO, CEO, Board?

Cash Holdings by Australian Firms
Firms hold significant amounts of cash.
At the end of fiscal 2007, cash represented 29.2% (22.8%) of the aggregate assets of all (top 250) AspectFinancial firms.
While this is a large percentage, for many firms, the dollar value of cash holdings was also large.
News Corp $9.1 billion
Qantas $3.3 billion
Seven Network $2.6 billion
Macquarie Airports $2.5 billion
BHP Billiton $2.3 billion
Consolidated Media $2.2 billion
Rio Tinto $1.8 billion
Toll Holdings $1.7 billion

Motives for Holding Cash
Transaction costs
Free cash flow
Governance
Taxes
Capital structure choices
Pecking order
Flexibility

Trade-off
Benefits
Cash reduces the likelihood of financial distress - safety reserve
Cash minimize the costs of raising external funds
Cost
Low return on liquid assets

Firm Characteristics and Cash Holdings
Firms that pay dividends can reduce dividend payments and hold less cash than firms that do not pay dividends本论文由英语论文网 www.51lunwen.org整理提供
The cost of incurring a cash shortage is higher for firms with a larger investment opportunity set due to the expected losses that result from giving up valuable investment opportunities
To reduce the probability of experiencing financial distress, firms with higher leverage are expected to hold more cash
Larger firms with better access to capital market hold less ca本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。