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SESSION V-1 : CORPORATE FINANCE II (21/12/2007 à 09h00)

Edith Ginglinger (Université Paris-Dauphine)

Financial Strength and Product Market Performance: The Real Effects of Corporate Cash Holdings

Auteurs : FRESARD Laurent (University of Neuchâtel) Email :

Intervenants : FRESARD Laurent (University of Neuchâtel)

Rapporteurs : MICHENAUD Sébastien (HEC Paris)

In this paper I empirically investigate whether a cash-rich firm can capture market
shares to its cashpoor rivals, and examine the determinants of such strategic gains.
Using U.S. intra-industry data from 1971 to 2005, I find that firms with larger cash
reserves than their industry-year average expand their sales markedly more than rivals
in future years. This “cash effect” turns out be magnified when industry rivals face
tighter financing constraints, when investment opportunities are more interdependent
between product market participants as well as in response to negative (unexpected)
shocks to aggregate demand. Noteworthy, my tests show that the impact of cash on
market share gains has increased over-time and that the importance of this evolution
varies along with industry characteristics and the financial structure of rivals. Overall,
my results provide strong evidence that by enhancing competitive performance, firm’s
cash policy encompasses an important strategic dimension.

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Corporate Investment and Analyst Pressure

Auteurs : MICHENAUD Sébastien (Hec Paris) Email :

Intervenants : MICHENAUD Sébastien (Hec Paris)

Rapporteurs : BESSIERE Véronique (Université Montpellier 2)

This paper empirically investigates whether executives alter capital budgeting decisions
to meet or exceed analysts’ earnings per share (EPS) consensus forecasts. I find that
(i) firms reduce investment when analyst pressure to increase EPS is high and that (ii)
firms increase their likelihood to meet or beat analyst EPS consensus forecasts by
reducing investment. Investment has a direct impact on EPS through depreciation
expenses and collateral costs. The observed reduction in investment to meet forecast
targets occurs primarily within firms with better investment opportunities. This pattern is
consistent with the passing up of valuable investment opportunities in response to analyst

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Assigning Market Power to Price Cap Regulation by the Analysis of Investment Decisions

Auteurs : NAGEL Thomas & RAMMERSTORFER Margarethe (Vienna Univ. of Economics and Business Administration)

Intervenants : NAGEL Thomas (Vienna University of Economics and Business Administration)

This paper examines the effects and dependence of price regulation, quality aspects or
benchmark scaling and market power. By considering a model without regulation, we
first show how quality parameters, included via benchmark scaling factors, influence
investment behavior and how the additional existence of market power affects these
results. This existence of market power allows further conclusions for certain stages of
market liberalization. Hence, it becomes possible to analyze investment behavior over
time which corresponds to different levels of regulatory development, starting from a
natural monopoly and ending up at a market with workable competition. We can then
enhance the previous model by creating a general framework with regulation and derive
further optimal investment decisions. Therefore, we use a real option approach which
enables us to compare the two frameworks and the adherent investment triggers. Our
model allows the regulatory authority to test their regulatory setup ex ante as well as ex
post in order to quantify the consequences of their activities.

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