Construct a table that reports the regression coefficients

Assignment Help Applied Statistics

Reference no: EM132133893

Questions -

Question 1 - Briefly explain what each of the following theories says about corporate cash holdings:

The static tradeoff theory:
Information asymmetry.
The agency costs of debt.
Managerial agency theory.
The financing hierarchy model (also known as the pecking order model)

Compustat Code	Description
GVKEY	Global Company Key
ACT	Current assets-total
AQC	Acquisitions
AT	Assets-total
BKVLPS	Book value per share
CAPX	Capital expenditure
CH	Cash
DLC	Debt in current liabilities-total
DLTT	Long-term debt-total
DP	Depreciation and amortization
DVC	Dividends common/ordinary
EBIT	Earnings before interest and taxes
LCT	Current liabilities-total
SALE	Sales/turnover (Net)
TXT	Income taxes-total
XRD	Research and development expense
PRCC_F	Price close-annual-fiscal
Table I: Description of the data in Assignment Data.xlsx.

Question 2 - Table II provides the construction rules for the variables you will use to test the competing explanations for corporate cash holdings. You should verify that the variable definitions there agree substantially with those in Table 1 of Opler et al. (1999). Now, construct the variables described in Table II, and present their summary statistics in the same format as Table 1 in Opler et al. (1999). You will not require the variables Dividend dummy, Truncated cash/assets, Payout to shareholders or Industry sigma for this analysis, so they should not appear in your table of summary statistics.

Variable in Opler et al. (1999)	Construction Rule
Cash/assets	CH/AT
Real size	ln(AT)
Market-to-book ratio	PRCC F/BKVLPS
R&D/sales	XRD/SALE
Cash flow/assets	(EBIT-DP-TXT-DVC)/AT
Net working capital/assets	(ACT-LCT-CH)/AT
Capital expenditures/assets	CAPX/AT
Acquisitions/assets	AQC/AT
Total leverage	(DLC+DLTT)/AT
Dividend dummy	If DVC > 0 then 1 else 0
Table II: Construction of the variables used by Opler et al. (1999).

Question 3 - Use the variables described in Table II to replicate the regression tests documented in Table 4 of Opler et al. (1999). In detail, you should run a multivariable OLS regression, with the natural logarithm of Cash/assets as the dependent variable and the remaining variables in Table II as the independent variables. You do not need Industry sigma and Regulation dummy in your regressions.

Run OLS regressions. You should then construct a table that reports the regression coefficients and associated t-statistics for each independent variable. Discuss the following statements by Opler et al. (1999), with reference to the first column in their Table 4, and assess them in the light of your own results:

(a) "We find that cash holdings decrease significantly with size, net working capital, leverage, whether a firm pays dividends . . . . Cash holdings increase significantly with the cash flow-to-assets ratio, the capital expenditures-to-assets ratio, . . . and the R&D-to-sales ratio."

(b) ". . . the coefficients of the market-to-book, cash flow-to-assets, and the dividend dummy variables are consistent with the static tradeoff theory, as well as with the financing hierarchy model." (Your answer should explain what the tradeoff theory and the financing hierarchy model say about the signs of coefficients of the market- to-book, cash flow and dividend dummy variables.)

(c) "However, the coefficients of the size, capital expenditures, and R&D variables are more consistent with the static tradeoff theory than with the financing hierarchy model." (Your answer should explain what the tradeoff theory and the financing hierarchy model say about the signs of the coefficients of the size, capital expenditure and R&D variables.)

(d) "It is not clear that the financing hierarchy model has predictions for the sign of working capital . . . . The coefficients of these variables are consistent with the static tradeoff theory." (Your answer should explain what the tradeoff theory says about the sign of the coefficient of the working capital variable.)

References -

Hillier, D., M. Grinblatt, and S. Titman (2012). Financial Markets and Corporate Strategy (second European ed.). Maidenhead, Berkshire: McGraw-Hill Education.

Opler, T., L. Pinkowitz, R. Stulz, and R. Williamson (1999). The determinants and implications of corporate cash holdings. J. Finan. Econ. 52 (1), 3-46.

Attachment:- Assignment Files.rar

Reference no: EM132133893

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