Re-examining the effects of cash windfalls on corporate investment decisions

Author Name(s)

Bryant Paulinski,
Daisy Luna, and
Kyungyeon (Rachel) Koh, PhD

Faculty Advisor(s)

Rachel Koh

Abstract

This research project examines the effect of cash windfalls on corporate investment activities and financial performance. We specifically utilize the accounting data on gains arising from legal settlements reported on the 10-K financial statements. Settlement awards properly represent sudden, largely unanticipated cash inflows that can be used at the discretion of the managers. While the modern theory of the firm offers some predictions as to how firms use this cash, empirical findings will shed light on the consistency between theory and practice. Our project updates and extends a seminal paper by Blanchard, Lopez-de-Salines, and Shleifer (BLS 1994), which studies the implications of receiving windfalls; and incorporates the latest developments in behavioral finance. In our main results, our sample of 87 firms between 2011-2015 exhibit a statistically significant increase in the investment expenditures after settlement windfalls, while showing a minimal increase in borrowing and minimal change in cash and profitability.

Presentation

Poster

3 thoughts on “Re-examining the effects of cash windfalls on corporate investment decisions”

  1. Dr. Weldon Zane Smith

    Thanks for joining us during community time! I enjoyed talking to you and the others about graduate school and future plans.
    Nice poster and research, thanks for submitting to the conference!

  2. Maria Ballesteros-Sola

    Paul, Daisy, impressive work! You set the standard on the remote poster presentation. Having sections highlighted as you were presenting the information was really effective. Kudos for taking upon the challenge of revisiting well-established/known papers; even seasoned researchers wait before they feel ready to do that- congrats to your advisor for guiding you in such an effort. Your data collection phase sounds very labor-intensive – impressed that you were able to do all that in one semester. I encourage you to continue working on this research, and hopefully, we can celebrate its publication in the near future. Congrats!

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