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Erschienen in:

05.05.2023

Effects of financial flexibility value and accounting conservatism on investment: evidence from mispricing

verfasst von: Chao Chin-Fang, Yi-Mien Lin, Teng-Shih Wang

Erschienen in: Journal of Economics and Finance | Ausgabe 3/2023

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Abstract

This research examines how the interactive effects of financial flexibility value and accounting conservatism influence corporate investment decisions and further explores the moderating effect of a firm’s mispricing on the above relationship. The findings show that firms with high financial flexibility and conservatism in the prior period are less likely to over-invest in the current period, because managers tend to make conservative decisions. Moreover, equity financing results in over-investment among overpriced firms, which is robust after considering a firm’s hedging factor and high agency costs.

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Fußnoten
1
From corporate finance theory, the value of a firm is the discounted value of future cash flows. Therefore, the impact of hedging on the value of a firm originates from its impact on either cash flow or capital costs.
 
2
McNichols and Stubben (2008) and Bushman, Piotroski, and Smith (2011) examine the impact of accounting characteristics on investment efficiency. Kravet (2014) indicates that a firm with high financial flexibility has low leverage, and thus its capital cost is less likely to be influenced by accounting conservatism.
 
3
Kaplan and Zingales (2000) use investment–cash flow sensitivity to measure financial constraints.
 
4
Myers and Majluf (1984) indicate that because debt risk is lower than cash replenishment, the external financing of a firm is biased toward debt financing.
 
5
Warr et al. (2012) show that when the share price is mispriced, the degree of deviation between actual and target leverage becomes over- or under-leveraged, influencing subsequent adjustment speed of the leverage ratio.
 
6
Hertzel and Li (2010) and Bonaimé, Öztekin, and Warr (2014) adopt the RKRV model to estimate the intrinsic value.
 
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Metadaten
Titel
Effects of financial flexibility value and accounting conservatism on investment: evidence from mispricing
verfasst von
Chao Chin-Fang
Yi-Mien Lin
Teng-Shih Wang
Publikationsdatum
05.05.2023
Verlag
Springer US
Erschienen in
Journal of Economics and Finance / Ausgabe 3/2023
Print ISSN: 1055-0925
Elektronische ISSN: 1938-9744
DOI
https://doi.org/10.1007/s12197-023-09625-y

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