Pushing Back the Boundaries

1. Introduction
§ Debt markets → the most important developments have been continued deregulation and regulatory harmonization
§ Eurobond, Euro-medium ten note (EMTN) and Euro-commercial paper (ECP) markets
§ Access to the Eurobond market → be made less cumbersome by the rapidly growing acceptance of EMTNs by investors who traditionally purchased Eurobonds
§ Access to the Euromarkets → has always been determined less by overt regulation than by unofficial or investor-driven market practice
§ Current economic climate → regulatory developments which have facilitated access to the securities markets have been partially offset by investors' concerns over credit risk
§ Ratings have become increasingly important → unrated entities will find it more difficult than before to borrow via a Eurobond offering
§ Financial covenants for corporate issuers → more restrictive → as investors try to protect themselves against downgrading and defaults
§ Domestic markets have also continued to benefit from deregulation and regulatory harmonization:
i. Standards of prospectus and listing requirements converge → issuers find it less expensive and time consuming to issue outside their home market
ii. Deregulation often permits the issuance of a more sophisticated range of instruments than was previously allowed
iii. The distinction between international and domestic securities markets has become increasingly blurred → it has become correspondingly easier for issuers to find an appropriate investor base for their securities
§ The international equity markets → have traditionally been far smaller in issuance volume terms than their debt counterpart → because of regulatory differences and equities tend to be denominated in the currency of the issuer and settled in its home market

2. Europe
§ The international bond market has traditionally had its headquarters in London
§ Eurobond market → can be accessed by institutions ranging from small, unrated corporations to large supranational institutions
§ The liberalization → has increased the pressure on other regulatory authorities to bring their regulations into line
i. The strongest candidates for change are the French, Dutch and Swiss markets
§ Banking industry is pressing for the securities industry to be forced to comply with bank-style capital adequacy requirements
i. Large corporations and state and sovereign entities might find it more difficult to access the markets
§ Continental European equity markets still differ considerably in structure, liquidity and regulation
§ Supply of equity is increasing → as family-run businesses are sold off by a generation that does not wish to continue running these businesses
§ The European investor base is becoming more institutionalized
§ Admission Directive → coordinates the conditions for the admission of securities to official stock exchange listing → by setting minimum requirements which have to be met by any company seeking a listing
§ European Commission (EC) Directives → should mean greater efficiency and transparency in the markets for public securities → both debt and equity

3. United States
§ The US authorities still operate a separate environment
§ All public offerings of securities in the US → must be registered under the Securities Act of 1933
§ The appeal of the US public markets for foreign issuers → has traditionally been limited to larger borrowers with the time
§ By limiting the extraterritorial impact of the existing regulations and extending the exemption for private placements → the Securities and Exchange Commission (SEC) has made it easier and cheaper for foreign borrowers to access the US debt and equity markets

4. Emerging Markets
§ One of the most significant trends → has been the increase in companies and financial institutions from emerging markets seeking to raise capital outside their home markets
§ The size of predicted capital flows from these countries → has serious implications for the international securities markets
§ The economic and political background of the companies whose shares are being offered → involve particular challenges when the shares are being offered internationally

5. New Products
§ Most encouraging for potential issuers of securities → is the increased range of instruments and currencies available
§ Development in derivatives as well as a proliferation of hybrid debt / equity instruments → have allowed issuers far greater flexibility in choosing securities
§ These new instruments → require a far greater understanding of the legal and accounting environments of:
i. the jurisdiction from which the securities are issued
ii. Of those into which they may be sold
§ Some of the most powerful instruments and structures → have developed simply as a response to the increased internationalization of world securities markets
§ Global offerings → allow issuers to gain access to a more diverse investor base than was available to them previously → enabling them to lower their cost of funds and to increase name recognition
§ Debt markets → global bond issues are becoming an increasingly popular tool for certain of the larger borrowers
§ Development of the Global Depository Receipt (GDR) → another indication of the increasing internationalization of the international securities markets
§ GDR → a capital raising structure that provides issuers with a means to tap international capital markets through the simultaneous issuance of a single, fungible security in the US and other markets
§ The GDR → is offered simultaneously in several jurisdictions
§ GDRs → have facilitated offerings of securities from Korea, Malaysia, the Philippines, India, China, Taiwan, Thailand and Singapore → without obliging investors to operate within the confines of the local trading and settlement systems
§ The general trend is clear and it is a positive one for issuers of debt and equity securities
§ By giving issuers access to a greater diversity of markets and so a greater number of potential investors → these trends should also lower borrowers' costs of borrowing

Foreign Ownership and Investment: Evidence from Korea

1. Introduction
§ Korean equity market → opened to foreign investors in January 1992
§ Maximum foreign investment limits → eliminated in May 1998
§ Effects of increase in foreign ownership → attract many attentions
§ Researches found → firm’s investment depends on the availability of internal funds
§ The importance of financial factors → is attributed to higher costs of external finance arising from information asymmetry and agency costs in an imperfect capital market
§ This study → focuses on the level of foreign ownership as a segmenting criterion
§ If financial intermediaries consider that foreigners favour firms with low information asymmetry → firms with high foreign ownership are able to raise external funds at low cost
§ If foreign investors have better monitoring skills than domestic investors in developing countries → foreign firms have less managerial agency problems
§ Test whether firms owned by foreigners face less credit constraint than domestically owned firms → main empirical findings:
i. Cash flow sensitivity of investment ↓ as foreign ownership ↑
ii. After 1998 → effect on foreign ownership on financial constraints became stronger

2. Relevant Literature and Hypothesis Formulation
§ Modigliani and Miller → Firms investment depend on the profit opportunity
§ Empirical literature → found that firms’ investment decision depend on financial factors → availability of internal funds
§ Why investment is sensitive to internal funds in imperfect financial markets → two streams:
i. Focus on lemon premium → firms must pay on external finance → firms tend to rely internal funds to carry out performance
ii. Studies attribute the importance of internal funds to managerial agency problems
§ Managers → not the owners → may pursue their own interest → not the stakeholders’ interest
§ Managers tend to spend all available funds on investment projects at their own discretion
§ Both stream of literature predict → the availability of internal funds does affect investment
§ Investment of more financially constrained firms respond more sensitively to changes in cash flow
§ Concentrated ownership → leads to less liquidity-constraint
§ Managers’ ownership stakes in their firms increase → investment-cash flow sensitivity increase
§ Cash flow sensitivity decrease → after a certain level of insider holding
§ Most developing countries →have recently experienced an increase in the equity share of foreigners
§ FDI → eases credit constraints by bringing in capital
§ Ivory Coast → foreign firms were less credit-constrained than domestic firms
i. FDI → reduces firm-level financing constraints
§ Present study → examine whether financial constraints are mitigated as a result of a favorable financing position in market
§ Foreign investors prefer → equity shares in firms with low information asymmetry to those with higher information asymmetry
§ Japanese market → Foreigners prefer large firms, firms with good performance, low risk, and low leverage
§ Swedish firms → foreigners prefer large firms, firms paying low dividends, and firms with large cash position
§ Czech firms → foreign investors seek safe and profitable firms where they can exert influence on corporate governance
§ Financial constraints model and managerial discretion model → one expect cash floe sensitivity of investment to be lower in foreign owned firms than in domestically owned firms

3. Model and Method
§ Model
i. q is the only determinant of investment and no other financial variable should matter
ii. A test for existence of financing constraints amounts to a test for null hypothesis
iii. Test → whether cash flow sensitivity of investment differs across foreign ownership structure
iv. Test → whether the complete opening of the Korean equity market has effected the degree of financial constraints
v. q model has many limitation → difficult to measure q → because average q is equal to marginal q under strict condition
vi. Forbes → derived an Euler equation
a. From the model of maximization of the firm value → under the assumption that dividend must be non-negative
b. Implying that external financing is costly due to information asymmetry
§ Method
i. OLS for dynamic investment models → result in biased estimates → because of endogeneity and heterogeneity problems
ii. Sales and cash flow depends on technological shock
iii. The presence of lagged investment-to-capital ratio as an explanatory variable → bias the coefficient estimates from the OLS
iv. The generalized method of moments (GMM) estimation → widely used for dynamic panel model → depends:
a. On the adoption of appropriate instruments
b. On the efficient elimination of unobserved firm effect
v. Arellano and Bond → two specification tests:
a. A Sargan test for over identifying restriction → used to test for the validity of instruments
b. A test of serial correlation of errors terms → used to detect the presence of unobserved individual effect
§ Data and definition of variables
i. A firm-level panel data set → constructed from the Korea Investors Service-Financial Analysis System
ii. Data set → consist of 5084 observations of 371 firms used → period 1992-2002
iii. High foreign ownership → based on two criteria:
a. More than 5.88% foreign ownership
b. More than upper quartile foreign ownership
iv. The dummy variable High → has a value of one for firms with high foreign ownership and zero

4. Empirical Result
§ Sargan test result for over-identifying restrictions → indicate that the instruments used are valid
§ q-model and Euler equation → suggest that:
i. The availability of internal funds does effect investment levels
ii. Persistence is found in a firm’s investment from significant estimates in the lagged investment-to-capital ratio
§ q-model and Euler equation → the cash flow sensitivity for firms with high foreign ownership is statistically insignificant
i. It suggest → financial constraints faced by firm decrease as foreign ownership increases
§ Managers of a firm with high foreign ownership → less likely to use cash flow at their discretion due to improving corporate governance system
§ In the Korean Stock Market → found that estimates in cash flow are lower after 1998
§ It is conjectured → the opening of the stock market is surely one of the factors in the mitigation of financial constraints
§ Found → liquidity constraints are reduced in firms with low foreign ownership
§ Cash-flow sensitivity in firms with high foreign ownership → statistically insignificant regardless of time period
§ Liquidity constraints → not statistically significant in firms with high foreign ownership
§ With non-linear relationship between foreign ownership structure and the value of the firm → foreign ownership seems to have a linear relationship to financial constraints

How Corrupt is Wall Street?

§ Kanjinal → a Queens pediatrician → claimed he lost $500,000 investing in INSP
§ The Securities and Exchange Commission → launched a probe into practices at 10 firms → while the Justice Dept. is pondering an enquiry or its own
§ The widening scandal → plunged Wall Street into crisis
o Because many more individuals lost money in the recent market collapse
§ Relationship between analyst and their investment banking colleagues → grow
o Because it comes on the heels of several other scandals → raise big questions about how Wall Street operates
§ Enron Corp.’s collapse
o Many firms may have made a bundle investing in the partnership
o Those same firms advised clients to hold Enron stock virtually → until it went bankrupt
o Makes Wall Street seem rigged for the benefit of insiders as never before
§ Entire economy depends on the financial system → to raise and allocate capital
o Financial system → is built on the integrity on its information
§ Investors hesitate to put money into stocks
o It could easily put a damper on the economy → if companies are less willing or less able to raise capital on Wall Street
§ Wall Street → was always struggled with conflict of interest
§ An investment bank → is a business built on the conflict of interest → the same institution serve two masters:
o The companies → sells stocks, issued bonds, or executes mergers → want high price and low interest rates on their bonds
o The investors → it advised → low price and high interest rates
§ The bank gets fee from both → trades stocks and bonds on its own behalf
§ Mega banks → are allowed to do everything from trading stocks to lending money and managing pension funds
§ Chinese walls → were supposed to keep the bankers honest and free from corruption
§ The final blow → was the tide of money that flooded over Wall Street during the great tech bubble
§ The bubble burst in the spring 2000 → wiping out more than $4 trillion in investor wealth
§ The fact → bubble market allowed the creation of bubble companies, entities designed more with an eye to making money off investors
§ A feeding frenzy set in as rivals fought to grab a big share of the market to bring companies public
§ Investors took everything at face value → understandable
§ Analyst disparage stocks as “crap” and “junk”
o They threaten to thrust Wall Street into the sort of public relations nightmare
o All the ingredients are present:
· Publicity-hungry attorneys general, packs of plaintiffs’ lawyers, and potential congressional hearings
§ More explosive documents may be on the way
§ Spitzer and the SEC → seek the analyst’ recommendation and their potential conflicts of interest
§ Analyst were being paid to help the firms’ banking clients
§ If the analyst covering other industries at the firm harbored similar doubts about the companies they hawked → the number of claimants will expand exponentially
§ If the prosecutors conclude that firms are guilty of systemic fraud → research directors and other high-ranking execs could be vulnerable
§ New rules forcing analyst to limit and disclose contracts with investment banker colleagues
§ Analyst who work at investment banks often work against investors
§ Analysts are under pressure from the companies they cover → as well as from big institutional clients who may own the stock → to give positive ratings
§ Analysts also need to shine in surveys → in which money managers vote for their favorite stock pickers → they spend too much time lobbying clients rather that crunching numbers
§ The biggest factor contaminating the system is COMPENSATION
§ Analyst’ pay → tied to how much investment banking business they bring in
§ Experts say → a lot of the corruption oozing from Wall Street has to do with an erosion in investment banking ethics and practices
§ Slashed commission → meant the firms were forced to derive more revenues from investment banking business
§ Investment bankers generated mega profits from secretly investing in Enron’s hidden partnership
§ Wall Street itself → used to have much more of an interest initial public offerings is way of its 200 high
§ It’s unlikely that Wall Street → can sustain its profitability
§ Firms has already taken some steps → such as eliminating direct reporting by analyst to investment bankers
§ Focusing on increased disclosure will do little to end the abuse
§ The Street should take great pains to monitor itself in an effort to restore investors’ confidence

Dividend policy and firm performance: Hotel REITs vs. Non-REIT hotel companies

1. Introduction
§ Mid-1990s → Real Estate Investment Trusts (REITs) à experienced rapid growth fueled by readily available external equity and debt financing
§ The authors → Economies of scale are the driving force behind recent mergers and acquisitions in the industry
§ REITs → over invest → must distribute 95% of their taxable income to shareholders in order to maintain their preferential tax status
i. Reits → less likely to suffer from agency problems associated with free cash flow
§ REITs have less internally generated equity financing and are more likely to seek external financing for acquisitions
§ Nobel and Tarhan (1998) → demonstrate improved operating performance for over-investing firms making larger distribution of cash to stockholders

2. Data and Methodology
§ Sample:
i. Sixteen hotel REITs and fifty-one non-REIT corporations from 1993 to 1999
ii. Examine whether differences in internally generated equity financing can explain differences in performance
§ The control group → consists of firms identified from COMPUSTAT as non-REIT corporations → whose primary business involves investment in hotels and motels
§ More than thirty variables of both types of companies have been collected
§ Examine the free cash flow hypothesis → create two sets of variables to capture the free cash flow for a company:
i. FCF1 → measures the total amount of post-tax free cash flow that is discretionary for mangers before they determine the amount of either interest or dividend payments
ii. FCF2 = EBITDA - TAX - INTEXP – TOTDIV
a. TOTDIV is the total dollar of dividends declared on common and preferred stock
iii. This definition → based on the assumption → depreciation and amortization expenses are at managers' discretions in both types of companies

3. Empirical Results
§ Structural differences
i. T-tests → conducted on collected variables → to examine the differences between the two types of firms
ii. Non-REIT hotel firms are about the same size as the hotel REITs
iii. Non-REIT companies produce higher income adjusted by firm size than REITs
iv. On annual returns of common stock (Stock Return) → non-REIT companies:
a. Perform marginally better than REITs
b. Riskier investments measured by Beta although the t-Statistic is insignificant
v. Return on assets (ROA) → REITs have significantly higher means than the non-REIT companies
vi. Mean of the market-to-book ratio → statistically higher for non-REITs than for REITs
vii. Non-REIT companies are more highly leveraged
a. Non-REIT companies have higher means than REITs on total liability, total debt and total interest expenses
viii. Non-REIT companies → higher means than REITs in total capital expenditure and total acquisition
ix. Non-REIT companies → higher depreciation and amortization expenses → which is typically considered an additional source of free cash flow
x. The means of dividend per share, common dividends and total dividends → higher for REITs than for non-REITs → maintaining high dividend payouts

§ The impact of free cash flow
i. Examine:
a. The relationship between a firm's market-to-book ratio and free cash flow controlling for whether the firm is a REIT
b. A firm's assets (size), leverage, debt coverage ratio, change in assets (growth) and profitability
ii. The asset growth variable → RASSET → proxies for opportunities for profitable reinvestment of cash flow
iii. Free cash flow has a negative impact on firm performance
iv. Market-to-book ratio is significantly greater for:
a. Larger firms (where size is measured by assets)
b. More heavily leveraged firms and more profitable firms
v. Market-to-book ratio → negatively related to free cash flow net of common dividends
vi. Market-to-book ratio decreases with the free cash flow measured at both before and after common dividend distribution levels
vii. Examine further → the relationship of the excess market value of the company and free cash flow
viii. Market-to-book ratio → positively dependent on the leverage level, the asset growth rate, the asset-adjusted operating income and the debt coverage ratio

4. Conclusion
§ Two types of companies statistically significant differences → in means across asset-adjusted earnings, leverage level, dividend policy, and most importantly, free cash flow levels
§ Non-REIT companies → more heavily leveraged and pay lower dividends than the REIT
§ Larger amount of free cash flow is retained by non-REIT firms than their REIT
§ Market-to-book ratio is negatively related to free cash flow

Share Repurchase:To Buy or Not to Buy

1. Introduction
§ Stock buybacks have leap-frogged corporate stock issues by ever-increasing amounts
§ Total number of shares repurchased in the last six years → far outstripped the total number of new shares issued
§ FEI members → Key findings:
i. 39% of the respondents instituted a share repurchase program → to improve their earnings per share numbers
ii. 28% → to distribute excess cash to shareholders
iii. 27% → their companies were trying to reduce the cost of employee stock option plans
iv. 12% → main reason → adjusting capital structure
§ Financial Executives Research Foundation → mission:
i. Determine the long-term effects of stock buyback programs on a company’s stock price
ii. Assess which companies benefit most from this programs
§ Data → 200 firms that announced, conducted and completed share purchase programs from 1991 to 1996
§ Completed Repurchase Plans → The firm announced and later purchase at least 50% of the shares authorized for the program
§ Firms that announced buyback program → usually just buy very little stock

2. Why Repurchase Shares?
§ Five commonly reasons:
i. To increase share price
ii. To rationalized the company capital structure
iii. To substitute share repurchases for cash dividend payouts → tax advantages
iv. To prevent dilution of earnings
v. To deploy excess cash flow → become alternative investment
§ Firm repurchases shares has different options:
i. Open market repurchases
ii. Tender offers
iii. Privately negotiated repurchases
§ Sample → Firms were consent in a range of industry and market capitalization:
i. 48% → have market caps below %200 million
ii. 10% → have market caps in excess of $10 billions
iii. 42% → along the continuum

3. Four Key Findings
§ Shares Outstanding
i. Proportion of share repurchases →5%
ii. This proportion → repurchases were measured in terms of numbers of shares or in terms of dollar value
§ No substitute for dividend payouts
i. Dividend payouts ratio → increase once the stock buyback program is over
ii. Large-cap and small-cap companies → reported the same increase in dividend payout ratios
§ Effect on earnings per share
i. The repurchasing firms → effectively closing gap → between their EPS growth rates and those of industry peers that aren’t buying back stock
§ Effect on debt
i. 27% of the fund used to finance the stock repurchases → stem from excess operational cash flow

4. Guidelines for Getting Going
§ A stock buyback program signaling:
i. Management won’t be funneling anymore money into markets or product lines that are dead ends
ii. The company isn’t hunting around for an acquisition
§ Companies repurchase equity only under these circumstances:
i. When they have excess debt capacity, and the supply of funds exceed the demand
ii. When they’re under-performing → profitability and sales growth rates→ relative to their industry’s averages
§ Companies should avoid stock buybacks under these circumstances:
i. When they’re over-leveraged and sales growth rates exceed industry averages
ii. When both their profitability and sales growth rates exceed industry average
§ A share repurchase program → must be conducted in strict accordance with federal securities laws to avoid liability for market manipulation or insider trading
§ Company’s board of directors → must determine that any purposed buyback program is a sound course of action and that it’s in the best interests of shareholders

5. The Value Connection
§ Shareholder Value Based Management → demonstrates that long-term shareholder value is created buy the firm’s growth and profitability prospects from its product market positions
§ The company’s decision to conduct a repurchase program could be misinterpreted by investors as a negative signal
§ But also can be a positive sign → because investors interpret the repurchases as the welcome return of capital and an indication that management is turning the business around
§ Conducting a successful stock buybacks → he or she must figure out how to bring the two major aspect – strategy and finance – together in the most effective way possible

The Effect of Asymmetric Information on Dividend Policy

1. Introduction
§ Several theories exist on why firms pay dividends
§ The various explanations of dividend policy → classified into at least three categories:
i. Agency cost
ii. Asymmetric information
iii. Transaction Cost
§ Alternative explanation on dividend policy is based on pecking order theory
§ The underinvestment → when the firm has inadequate funds for investment purposes → does not want to bear the lemons-premium associated with new capital issues
§ Firms find it optimal not to pay dividend → their exclusion from any empirical analysis may create a selection bias in the sample → resulting in biased and inconsistent estimates of the underlying parameters

2. Asymmetric Information, Testable Hypotheses, and Control Variables
§ Pecking Order Theory
i. Myers and Majluf → the precense of asymmetric information → a firm may underinvest in certain states of mature
ii. Firm can reduce underinvestment → by accumulating slack through retention
iii. Higher the control of asymmetric information → lower the dividend to control the underinvestment problem

§ Signaling Theory
i. Higher dividends → higher current earnings
ii. Dividend convey information about current earnings → trough the source and uses identity (time)
iii. Firms with higher current earnings → pay high enough dividend
iv. Firms with higher level asymmetric information → have to pay more dividend → to signal the same level of earnings as firm with a lower level of asymmetric information

§ Control Variable
i. The potential importance of asymmetric information in determining dividend policy does not rule out other factors affecting dividend policy

§ Agency Cost of (External) Equity
i. Dividend payments → reduce agency cost of external equity
ii. Two Forms of agency cost
a. From the monitoring of managers
b. From risk -aversion
iii. Value of dividend in controlling agency cost → is likely to be lower in the presence of some other control mechanism → such as managerial ownership of shares
iv. Higher managerial or insider ownership → lower agency cost

§ Growth or Investment Opportunities
i. Size of the investment increase → the ex-ante loss resulting from underinvestment also increase
ii. Firm that expect rapid growth should lower its dividend payout
iii. Pecking-order and residual theories → Higher growth opportunities of the firm → Lower the dividend

§ Cash Flow
i. Residual theory, pecking-order theory, signaling argument → higher current earnings → pay higher dividend

§ Agency Cost of Debt and Financial distress
i. Firms may face binding debt covenants when they are in financial distress
ii. Firms reduce dividends early during period of financial distress
iii. Firms with higher likelihood of financial distress may pay lower dividend

3. Empirical Specification, Methodology and Measures for the Dependent Variable
i. The optimal dividend policy is determined by the firm-specific attributes
ii. Non-dividend paying firms find it optimal not to pay dividends → should not be ignored in any analysis of corporate dividend policy

§ Dependent Variables Measures
i. Dependent variables → conventional dividend yields → equals the ratio of dividend per share to price per share
ii. Dependent variable → equals the measure dividend yields for dividend-paying firms → equals zero for non-dividend-paying firms

§ Data
i. Date were obtained from the industrial annual COMPUSAT database for period 1988-1992
ii. Sample consist of manufacturing firms that trade on either NYSE or the AMEX
iii. Five year period were chosen
iv. Firms that had no data and firms initiating or omitting dividends in the sample period → dropped from sample
v. The final sample → 446 firms, 158 of which are non-dividend-paying firms

4. Empirical Results
i. Independent variables → insider ownership variables, analyst following, growth opportunities, the cash flow measure, dummy variables
ii. Analyst following and cash flow → positive and significant at 1 percent level
iii. The coefficient on growth opportunities → negative and significant at 1 percent
iv. The coefficient on distress variables → positive and significant at 10 percent
v. Positive coefficient on analyst following → firms with less asymmetric information pay higher dividend → consistent with pecking order theory, inconsistent with signaling theory
vi. Negative coefficient on the growth measure → consistent with pecking order theory
vii. Positive coefficient on DIST → firms with low cash flow and low growth opportunities → pay higher dividends

§ Dividend Policy and Insider Ownership
i. Analyst following is negatively related to insider ownership
a. The demand for analyst services → stems from outsider to the firm
ii. Lower analyst follower → higher asymmetric information
iii. Dividends → negative relationship with insider ownership

5. Dividend Policy and Equity Issues: A further Test of the Pecking Order Theory
i. Pecking order theory
a. Firms should exhaust their internal funds first before resorting to external funds
b. Firms that issue equity should pay lower dividend
ii. Result → Firms that resort external sources for funds attempt to first exhaust their internal funds by paying lower dividend

§ Dividend Policy and Firm Size
i. Positive relationship between dividend yields and size
ii. Firm size → calculated as the logarithm of the book value of assets
iii. Larger firms → have less asymmetric information → pay higher dividend
a. Consistent with pecking order theory
iv. While size is positive and significant → analyst following is significant

§ Dividend Policy, Asymmetric Information, and Issue Cost
i. Pecking order theory → asymmetric information problems exacerbate the under pricing associated with new capital issues
ii. Firms may be reluctant to issue equity → when their stock is undervalued
iii. A higher analyst following → less asymmetric information
iv. Issue cost increase with the level of asymmetric information between the firms and its investors