Variable definitions
| Variables | Definitions |
|---|---|
| hedge | Number of words from the CLMZ word list (defined in Appendix 2) minus the number of words of a firm in the same industry-year with the minimum word count, all divided by the difference between the maximum and minimum number of words firms in the same industry-year have. The industry is defined at the Fama–French 48 industry level |
| EQ1 | Absolute value of the residual estimated by Dechow and Dichev (2002) model |
| EQ2 | Standard deviation of the Dechow and Dichev (2002) model residual in the past 5 years |
| EQ3 | Absolute value of abnormal accruals estimated by modified Jones model |
| EQ4 | Absolute value of abnormal current accruals |
| logasset | Firm size; the natural log of total assets |
| booklev | Book leverage; long-term debt plus debt in current liabilities divided by total assets |
| cash | Cash holding; cash plus short-term investments divided by total assets |
| MB | Market-to-book ratio; market value of equity plus the book value of debt divided by total assets |
| profit | Profitability; operating income before depreciation divided by total assets |
| tangib | Asset tangibility; net property, plant and equipment divided by total assets |
| NoRD | Indicator for R&D expenditure; equals 1 if R&D expenditures are missing, otherwise 0 |
| RDintens | R&D intensity; R&D expenditures divided by total assets (set to zero if R&D expenditure is missing) |
| Eindex | Entrenchment index introduced by Bebchuk et al. (2009), E-index includes the following provisions: classified board, limit ability to amend bylaws, limit ability to amend charter, majority vote requirement, golden parachutes and poison pill |
| WW index | Measurement of financial constrains per Whited and Wu (2006), WWindex = −0.091CF − 0.062DIVPOS + 0.021TLTD − 0.044LNTA + 0.102ISG − 0.035SG. CF is the ratio of cash flow to total assets; DIVPOS is an indicator that equals 1 if the firm pays cash dividends; TLTD is the ratio of long-term debt to total assets; LNTA is the natural log of total assets; ISG is the firm’s 3-digit industry sales growth; SG is firm sales growth. The higher the WW index value, the more stringent the financial constraint is |
| SA index | Measurement of financial constraints per Hadlock and Pierce (2010), SAindex=(−0.737* Size) + (0.043* Size*Size) − (0.040* Age). Here, size is the total assets at the beginning of the fiscal year and age is the number of years since first present in CRSP. The higher the SA index value, the more stringent the financial constraint is |
| HH index | Measurement of inter-industry competition: the sum of the square of the market share of all firms within each FF48 industry |
| Lerner index | A measurement of intra-industry competition; defined as operating profits to sales. The numerator is sales minus cost of goods sold minus selling, general and administrative expenses. When this calculation is not possible, we use operating income instead |
| capx | The dependent variable in investment equation; measured at year t+1 capx=(CAPX/lag AT)*100 |
| institutions | The percentage of firm shares held by institutional investors |
| analysts | The number of analysts following the firm as provided by IBES |
| gindex | The measure of anti-takeover protection created by Gompers et al. (2003), multiplied by minus one |
| gdummy | An indicator variable that takes the value of one if G-Score is missing, and zero otherwise |
| stdcfo | Standard deviation of the assets-deflated cash flow from operations from years t−5 to t−1 (requiring five non-missing values) |
| stdsales | Standard deviation of the assets-deflated sales from years t−5 to t−1 (requiring five non-missing values) |
| stdinvest | Standard deviation of investment from years t−5 to t−1 (requiring five non-missing values) |
| zscore | = 3.3 pretax income + 0.999 sales + 0.25 retained earnings + 0.5 (current assets – current liabilities)/total assets |
| tangibility | Net property, plant and equipment deflated by total assets |
| indK | Mean capital structure for firms in the same SIC3-digit industry, where capital structure = long-term debt/(long-term debt + market value of equity) |
| cfosale | The ratio of CFO to sales |
| slack | The ratio of cash to PPE |
| dividend | An indicator variable that takes the value of one if the firm paid a dividend, and zero otherwise |
| opcycle | The log of receivables to sales plus inventory to COGS, then multiplied by 360 |
| Variables | Definitions |
|---|---|
| Number of words from the CLMZ word list (defined in | |
| Absolute value of the residual estimated by | |
| Standard deviation of the | |
| Absolute value of abnormal accruals estimated by modified Jones model | |
| Absolute value of abnormal current accruals | |
| Firm size; the natural log of total assets | |
| Book leverage; long-term debt plus debt in current liabilities divided by total assets | |
| Cash holding; cash plus short-term investments divided by total assets | |
| Market-to-book ratio; market value of equity plus the book value of debt divided by total assets | |
| Profitability; operating income before depreciation divided by total assets | |
| Asset tangibility; net property, plant and equipment divided by total assets | |
| Indicator for R&D expenditure; equals 1 if R&D expenditures are missing, otherwise 0 | |
| R&D intensity; R&D expenditures divided by total assets (set to zero if R&D expenditure is missing) | |
| Entrenchment index introduced by | |
| Measurement of financial constrains per | |
| | Measurement of financial constraints per |
| Measurement of inter-industry competition: the sum of the square of the market share of all firms within each FF48 industry | |
| A measurement of intra-industry competition; defined as operating profits to sales. The numerator is sales minus cost of goods sold minus selling, general and administrative expenses. When this calculation is not possible, we use operating income instead | |
| The dependent variable in investment equation; measured at year | |
| The percentage of firm shares held by institutional investors | |
| The number of analysts following the firm as provided by IBES | |
| The measure of anti-takeover protection created by | |
| An indicator variable that takes the value of one if G-Score is missing, and zero otherwise | |
| Standard deviation of the assets-deflated cash flow from operations from years | |
| Standard deviation of the assets-deflated sales from years | |
| Standard deviation of investment from years | |
| = 3.3 pretax income + 0.999 sales + 0.25 retained earnings + 0.5 (current assets – current liabilities)/total assets | |
| Net property, plant and equipment deflated by total assets | |
| Mean capital structure for firms in the same SIC3-digit industry, where capital structure = long-term debt/(long-term debt + market value of equity) | |
| The ratio of CFO to sales | |
| The ratio of cash to PPE | |
| An indicator variable that takes the value of one if the firm paid a dividend, and zero otherwise | |
| The log of receivables to sales plus inventory to COGS, then multiplied by 360 |
Source(s): The authors
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