Zane Swanson

... Zane L. Swanson University of Central Oklahoma 100 North University Drive Edmond, OK 73034 Office: 405-974-2815 zswanson@alum.mit.edu ... Ontology is a branch of philosophical science whose objective is the study of structures and their characteristics in every area of ...

,The popular press has argued for and against the proposition that firms holding cash should be regarded highly by investors because the firms will have good prospects. Jensen’s (1986) free cash flow proposition indicates that an accumulation of cash is a bad idea. While considerable literature has examined the determinants of corporate liquidity, the current study breaks ground by

ABSTRACT To the extent that firm information provides data to complete markets, firm characteristics determine value to investors. Contrarily, investors are motivated by prospect theory to bid up firm prices without information especially concerning diminishing returns to investments. The valuation effect of investments is highly subjective in the case of R&D (growth options) and more concrete in regards to capital expenditures (assets-in-place). This study contributes to the investment knowledge frontier by analyzing diminishing returns to research and development (R&D) and capital expenditures in regards to a firm’s age.

We show that, for a firm facing a high marginal tax rate, the benefit of using debt relative to managerial ownership to control agency costs increases at a decreasing rate. Debt and managerial stock ownership represent alternative mechanisms for reducing agency costs of the relationship between owner-investors and managers in firms. However, although debt and managerial ownership provide overlapping benefits, only debt can provide the differential benefit of reducing the firm's tax liability. While the tax benefit from using debt relative to managerial ownership to control agency conflicts is an increasing function of the firm's marginal tax rate, the decreased managerial ownership results in external investors bearing a larger part of the cost of debt that accrues to the firm. Effectively, for external investors, the relative cost of debt decreases at a decreasing rate when the marginal tax rate increases. Therefore, the trade-off between debt and managerial ownership predicted by the agency literature is expected to be strong at low marginal tax rates, but get progressively weaker at higher marginal tax rates. In this paper, we build an analytical model of this hypothesis and provide strong empirical evidence in its support. Our study contributes to a further understanding of how tax rates might affect the interaction of capital structure decisions with the incentive compatibility issues and corporate governance. The study also provides a basis for future studies to examine factors other than tax rates that differentially affect debt and managerial ownership costs.

ABSTRACT This paper has been revised into one subsequent SSRN working paper and another paper in progress.Popular press has argued that firms holding cash should be regarded highly by investors because firms will access good prospects. This view contradicts with the Jensen (1986) free cash flow proposition. This study examines the investor viewpoint by investigating investment returns of portfolios created according to trading strategies based on cash holdings and predictions of cash holdings. Data is organized into quintiles categorized by PE ratios and then each quintile is divided into high and low cash-holding portfolios. Evidence is found in favor and against popular press contentions depending on the definition of cash holding.

... The Capital Structure Paradigm Evolution of Debt/Equity Choices Zane Swanson, Bin Srinidhi, and Ananth Seetharaman Westport, Connecticut London ... The capital structure paradigm : evolution of debt/equity choices / Zane Swanson, Bin Srinidhi, and Ananth Seetharaman. ...

ABSTRACT The relation of firm accounting information and investor decision-making is a key financial accounting issue. Firm accounting information is a result of management's decisions. This study focuses on the investors' perspective of the consequences of management's actions with respect to the cost of firm capital and the returns on assets. Conventional thought hypothesizes management to maximize the return on asset investments within the rubric of minimizing the firm weighted average cost of capital. Within this framework, we investigate financial statement relevance with regard to whether investors anticipate or react to firm asset investment returns. The study also examines the existence of synergy between firm operating and financial asset returns. Because leverage is a central capital structure factor, we also investigate the leverage impact on the relation between investor supplied fund costs and asset returns.

This analysis investigates several aspects of the relationship between daily REIT stock risk premiums and various interest rates. Consistent with prior research, the general findings indicate that interest rates do impact REIT returns. This study specifically finds that stock ...

ABSTRACT The relation of firm accounting information and investor decision-making is a key financial accounting issue. Firm accounting information is a result of management's decisions. This study focuses on the investors' perspective of the consequences of management's actions with respect to the cost of firm capital and the returns on assets. Conventional thought hypothesizes management to maximize the return on asset investments within the rubric of minimizing the firm weighted average cost of capital. Within this framework, we investigate financial statement relevance with regard to whether investors anticipate or react to firm asset investment returns. The study also examines the existence of synergy between firm operating and financial asset returns. Because leverage is a central capital structure factor, we also investigate the leverage impact on the relation between investor supplied fund costs and asset returns.

We investigate the effects of bankruptcy on equity value of the bankrupt firm's competitors and find that these effects are unclear. Using a sample of bankruptcies with debt over $ 120 million, Lang and Stulz (1992) find competitive and contagion effects on other firms in the same industry. We replicate their stratification of industry portfolios by concentration and leverage but use a sample of bankruptcy filings from a single legal regime. Our tests do not support their conclusions. Furthermore, use of a debt screen on bankruptcies appears to confound the conclusions, because test significance depends on the debt screen applied.

ABSTRACT The 2009 adoption of the Financial Accounting Standards Board (FASB) Generally Accepted Accounting Principles (GAAP) codification initiative made a significant step in the consolidation and ease of use of standards applied to accounting practices. In 2008, FASB and the International Accounting Standards Board (IASB) created a proposal for a presentation standard and collaborated upon a revision to the conceptual framework. While these steps can improve the functioning of accounting and related information technology systems, there are still ever increasing costs (e.g., complexity) to the body of knowledge. An accounting ontology may enable accounting professionals/academics to address accounting knowledge management issues. This study’s objective is to identify/analyze the potential benefits of applying an accounting ontology framework to the GAAP financial statement proposal, codification initiative and conceptual framework project.