||Analysis for the Relationships among International Financial Markets and the Corporate’s Optimal Cash Holding – Cross Century Evidence
||Department of Banking and Finance
optimum currency area
asymmetric threshold co-integration
panel threshold regression
第一部分專注於二十世紀末國際匯市之連動議題探討，以新台幣為主要匯率變數，分三個群組，依組別分別進行研究分析。該部分採Ender & Hurn (1994) 的 「廣義購買力平價」(G-PPP)理論，作多國匯率間互動關係之測試，借以分析新台幣在國際舞台中所扮演的角色，探討新台幣匯率與預設「最佳貨幣區」中各國匯率間的長期均衡互動關係。研究方法為Johansen (1988, 1990, & 1994)多變數誤差修正最大概似共整法。實證發現，所預設的三個多國匯率組合，都成功的建立起「最佳貨幣區」，表示新台幣與預設貨幣區中各國貨幣都存在著高度的互動影響。這其中，尤以「亞洲四小龍」四國間的互動關係最為顯著。文中亦發現，包括台灣在內的泛亞太平洋地區各小國間，也存在著相互依存關係，支持了Ender & Hurn (1994) 的發現。而新台幣與七大工業國強勢貨幣間的匯率共整測試，結果也顯現出新台幣受著此間強勢貨幣的深度影響。
論文第二部分為二十一世紀初受「金融海嘯」影響之國際股市連動之議題探討。使用之研究方法為Enders and Granger (1988)及Enders and Siklos (2001)的不對稱門檻共整合模型，包括TAR與MTAR及進一步的TECM與MTECM，探討美國股市三大指數與亞洲六個主要國家 (地區) 股市間不對稱的長短期均衡與動態關係。實證結果，先於相關性檢定中，發現次級房貸危機確實顯著地提高了美股與亞股間的相關連動，符合世界銀行對「傳染」(contagion)的最嚴格定義。
||Three subjects are empirically studied in this research. We first use two parts to investigate the international contagion effects among international stock markets and international exchange rate markets, respectively. The third subject concern the nonlinear testing for the optimal cash holding for a firm to maximize the shareholders’ wealth. In order to conquer the insufficient application of the methodologies from previous literature, the empirical study of our research undertakes both linear and non-linear examination to investigate the ‘style-fact’ of the real life phenomenon. We also reinforce the research design by setting up appropriate grouping in each of our research subjects.
In the first subject, we study on the long term equilibrium relationships among international exchange rate markets in each of three group settings (Asian four little dragons, Pacific Rim nations as a whole, and Taiwan together with seven large industrialized countries) basing NTD as the core currency during the period of post-Bretten Woods. The methodologies applied in this part are traditional Johansen (1988, 1990, 1994) multivariate maximum likelihood cointegration test. The theoretic model behind this part is the so-called ‘G-PPP’ elaborated by Enders and Hurn (1994) which related to the concept of OCA by Mundell (1961). The evidence shows that G-PPP holds for all three group settings, while the co-moving style explained by the number of cointegration ranks and the presence of linear trend and quadratic trend is found different for these three group settings. This implies that all three group settings had been successfully established OCA, but they had experienced different time paths of co-movement in the post-Bretten Woods era.
The second subject of our study is to examine the long-term equilibrium relationship between the U.S. stock market and Asian stock markets using asymmetric threshold co-integration model of Enders and Granger (1998) and Enders and Siklos (2001). The difference between the long-term equilibrium relationships during the pre- and post- subprime mortgage crisis is further examined. Moreover, this study analyzes the contagion effect of the U.S. stock market on Asian stock markets and asymmetric adjustment of the long-run equilibrium relationship before and after the subprime mortgage crisis. The findings show that the asymmetric long term equilibrium relationships between the US stock markets and Asian stock markets had been largely increased after experiencing the subprime crisis and financial tsunami.
Our final subject is trying to find the optimal level of cash holding for maximizing the firm value during the highly volatile period of international financial assets across centuries from 20th Century to 21st Century. All the 668 public listed and still actively trading US corporations from the period 1988 through 2008 are investigated and the methodologies employed is nonlinear non-dynamic panel threshold regression (PTR) elaborated by Hansen (1999). We first find that there is a non-linear relation between cash holding and firm value, and further adopt PTR model to examine the threshold effect. A two-threshold effect of cash holding on firm value is found in our empirical study. The result infers that more cash holding is good for firms but there exists an optimal level. These empirical results show that firm managers should maintain applicable liquidity policy to maximize firm value.
||Table of Contents
Chinese Abstract II
English Abstract III
Table of Contents V
List of Tables VII
List of Figures IX
Chapter 1 Synopsis of the Dissertation 1
1.1 Background and motivations 1
1.2 Research objectives 4
1.3 Research structure 6
1.4 Flow chart 9
Chapter 2 The Role of New Taiwan Dollar in the International Exchange Rate Markets 10
2.1 Introduction 10
2.2 The Model 13
2.3 Data 18
2.4 Methodologies and Empirical Results 19
2.5 Conclusion 26
Chapter 3 The Asymmetric Contagion Effect between the US Stock Market and Asian Stock Market in the Early Stage of 21st Century 28
3.1 Introduction 28
3.2 Literature review 30
3.3 Methodologies 34
3.4 Data and Empirical Results 39
3.5 Conclusion 53
Chapter 4 Is Hoarding More Cash Always Good for Firms? 55
4.1 Introduction 55
4.2 Data 58
4.3 Methodologies 62
4.4 Empirical Results 68
4.5 Robustness 76
4.6 Conclusion 77
Chapter 5 Conclusion Remarks 79
Reference in Chinese 82
Reference in English 82
List of Tables
Table 2.1. Comparison of the volume of trade between U.S. and Japan 14
Table 2.2 Augmented Dickey-Fuller Tests for Univariate Single Unit Root 20
Table 2.3 Tests for the Order of Integration Based on Dickey-Pantula Test 21
Table 2.4 Determination of Cointegration rank and Appropriate Model (Group-1) 24
Table 2.5 Determination of Cointegration rank and Appropriate Model (Group-2) 24
Table2.6 Determination of Cointegration rank and Appropriate Model (Group-3) 25
Table 3.1a the summary statistics for three major U.S. stock indices 41
Table 3.1b the summary statistics for six Asian stock indices 41
Table 3.2 the correlation coefficients of stock returns between the U.S. and Asian stock indices 42
Table 3.3 The results of unit root test 43
Table 3.4 Enders-Siklos Asymmetric threshold cointegration test between the U.S. and Asian stock indices 48
Table 3.5 Asymmetric Granger causality test between the U.S. and Asian stock indices 52
Table 4.1 Variable Definition 59
Table 4.2 Summary statistics 61
Table 4.3 Panel Unit Root Tests (Levin, Lin, and Chu, 2002, JE) 69
Table 4.4 Linear Regression 71
Table 4.5 Panel Threshold Regression Estimation: Threshold Effect Tests 73
Table 4.6 Panel Threshold Regression Estimation: Other control variables 75
List of Figures
Figure 1.1 Flow Chart 9
Figure 4.1 The optimal level of corporate cash holdings 57
Figure 4.2(a) Nonparametric Regression Fitting: Lowest Smoother 74
Figure 4.2(b) Nonparametric Regression Fitting: Local Polynomial Smooth 74
Reference in Chinese
方文碩、王冠閔與董澍琦，「亞洲金融危機期間股票市場的蔓延效果」，管理評論，第 25 卷第 2 期，2006年，頁 61-82。
聶建中、高友笙與楊超翔，「次級房貸危機前後美股對亞股的不對稱性蔓延效果」，中原企管評論，第 9 卷第 1 期，2011 年，頁 25-52。
Reference in English
Acharya, A., H. Almeida and M. Campello, 2007. “Is cash negative debt? A hedging perspective on corporate financial policies,” Journal of Financial Intermediation 16, 515-554.
Ahn, Seoungpil, David J. Denis and Diane K. Denis, 2006. “Leverage and investment in diversified firms, Journal of Financial Economics,” 79, 317-337.
Almeida, H., M. Campello, and M. S. Weisbach, 2004. “The cash flow sensitivity of cash,” Journal of Finance 59, 1777-1804.
Anderson, H. M., 1997. “Transaction Costs and Non-linear Adjustment towards Equilibrium in the US Treasury Bill Market,” Oxford Bulletin of Economics and Statistics, 59, 465-484.
Andrews, D. W. K. and W. Ploberger, 1994. “Optimal tests when a nuisance parameter is present only under the alternative,” Econometrica, 62, 1383-1414
Balke, N. S. and T. B. Fomby, 1997. “Threshold Cointegration,” International Economic Review, 38, 627-645.
Bates, T. W., Kathleen M. K. and R. M. Stulz, 2008. “Why do U.S. firms hold so much more cash than they used to? Unpublished working paper.
Berger, P. G. and E. Ofek, 1995. “Diversification’s effect on firm value,” Journal of Financial Economics, 37, 39-65
Berument, H., N. Dincer, and H. Olgun, 2006. “The Center and Periphery Relations in International Stock Markets,” Applied Financial Economics Letters, 2, 365-370.
Boucher, C., 2007. “Asymmetric Adjustment of Stock Prices to Their Fundamental Value and the Predictability of US Stock Returns,” Economics Letters, 95, 339-347.
Caporale, G. M., A. Cipollini and N. Spagnolo, 2005. “Testing for Contagion: A Conditional Correlation Analysis,” Journal of Empirical Finance, 12, 476-489.
Cha, B. and S. Oh, 2000. “The Relationship between Developed Equity Markets and the Pacific Basin's Emerging Equity Markets,” International Review of Economics and Finance, 9, 299-322.
Chen, L. H., M. Finney and K. Lai, 2005. “A Threshold Cointegration Analysis of Asymmetric Price Transmission from Crude Oil to Gasoline Prices,” Economics Letters, 89, 233-239.
Cheung, Y. W. and K. S. Lai, 1993. “Long-Run Purchasing Power Parity During the Recent Float,” Journal of International Economics, 34, 181-192.
Chiang, M. H., 2001. “The Asymmetric Behavior and Spillover Effects on Stock Index Returns: Evidence on Hong Kong and China,” Pan Pacific Management Review, 4, 1-21.
Chan, K.S., 1993. “Consistency and limiting distribution of the least squares estimator of a continuous threshold autoregressive model,” The Annals of Statistics, 21, 520-533.
Corbas, D. and S. Ouliaris, 1988. “Cointegration and Tests of Purchasing Power Parity,” Review of Economics and Statistics, 70, 181-192.
______, 1991. “A Test of Long-Run Purchasing Power Parity Allowing for Structure Breaks,” The Economic Record, 67, 26-33.Dickey, D. A. and W. A. Fuller, “Distribution of the Estimators for Autoregressive Time Series with Unit Root,” Journal of American Statistical Association, 74, 1979, 427-431.
Daines, Robert, 2001. “Does Delaware law improve firm value,” Journal of Financial Economics, 62, 525-558.
Davies, R. B., 1977. “Hypothesis testing when a nuisance parameter is present only under the alternative,” Biometrika, 64, 247-254.
Davies, R. B., 1987. “Hypothesis testing when a nuisance parameter is present only under the alternative,” Biometrika, 74, 33-43.
Dickey, D. A. and W. A. Fuller, 1981. “Likelihood Ratio Statistics for Autogressive Time Series with a Unit Root,” Econometrica, 49, 1057-1072.
Dickey, D. A. and Pantula, 1987. “Determining the Order of Differencing in Autoregressive Processes,” Journal of Business and Economic Statistics, 5(4), 455-461.
Dittmar, A. and J. Mahrt-Smith, 2007. “Corporate governance and the value of cash holdings,” Journal of Financial Economics 83, 599-634.
Dornbusch, R., Y. C. Park and S. Claessens, 2000. “Contagion: Understanding How It Spreads,” The World Bank Research Observe, 15, 177-197.
Enders, W., 1988. “ARIMA and Cointegration Tests of PPP Under Fixed and Flexible Exchange Rate Regimes,” Review of Economics and Statistics, 70(3), 504-508.
______, 1989. “Unit Roots and the Real Exchange Rate before World War I: The Case of Britain and the USA,” Journal of International Money and Finance, 8(1), 59-73.
Enders, W. and C. W. Granger, 1998. “Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates,” Journal of Business and Economic Statistics, 16, 304-311.
Enders, W., and S. Hurn, 1994. “Theory and Tests of Generalized of Purchasing Power Parity: Common Trends and Real Exchange Rates in the Pacific Rim,” Review of International Economics, 2(2), 179-190.
Enders, W. and P. L. Siklos, 2001. “Cointegration and Threshold Adjustment,” Journal of Business and Economic Statistics, 29, 166-176.
Engle, R. and C. W. Granger, 1987. “Cointegration and Error Correction: Representation, Estimation, and Testing,” Econometrica, 55, 251-276.
Eun, C. S. and S. Shim, 1989. “International Transmission of Stock Market Movements,” Journal of Financial and Quantitative Analysis, 24, 241-256.
Faulkender, M. and R. Wang, 2006. “Corporate financial policy and value of firm,” Journal of Finance 61, 1957–1990.
Foley, H., S. Titman and G. Twite, 2007. “Why do firms hold so much cash? A tax-based explanation,” Journal of Financial Economics 86, 579-607.
Forbes, K. and R. Rigobon, 2000. “Contagion in Latin America: Definitions, Measurement, and Policy Implications,” NBER Working Papers 7885, National Bureau of Economic Research.
Forbes, K. and R. Rigobon, 2002. “No Contagion, Only Interdependence: Measuring Stock Market Comovements,” Journal of Finance, 57, 2223-2261.
Ghosh, A., R. Saidi and K. H. Johnson, 1999. “Who Moves the Asia-Pacific Stock Markets—US or Japan? Empirical Evidence Based on the Theory of Cointegration,” The Financial Review, 34, 1999, 159-170.
Gorton, G. B., 2008. “The Subprime Panic,” NBER Working Paper, No.w14398, National Bureau of Economic Research.
Granger, C. W. J. and P. Newbold, 1974. “Spurious Regressions in Econometrics,” Journal of Econometrics, 2, 111-120.
Hamao, Y., R. W. Masulis and V. Ng, 1990. “Correlations in Price Changes and Volatility across International Stock Markets,” The Review of Financial Studies, 3, 281-307.
Hansen, B. E., 1996. “Inference when a nuisance parameter is not identified under the null hypothesis,” Econometrica, 64, 413-430.
Hansen, B. E., 1999. “Threshold effects in non-dynamic panels: Estimation, testing and inference,” Journal of Econometrics, 93, 345-368.
Harford, J., S. Mansi and W. Maxwell, 2008. “Corporate governance and firm cash holdings in the US,” Journal of Financial Economics 87, 535-555.
Haushalter, D., S. Klasa and W. Maxwell, 2007. “The influence of product market dynamics on the firm’s cash holdings and hedging behavior,” Journal of Financial Economics 84, 797-825.
Johansen, S., 1988. “Statistical Analysis of Cointegration Vectors,” Journal of Economic Dynamics and Control, 12, 231-254.
______, 1994. “The Role of the Constant and Linear Terms in Cointegration Analysis of Nonstationary Variables,” Econometric Reviews, 13(2), 205-229.
Johansen, S. and K. Juselius, 1990. “Maximum Likelihood Estimation and Inference on Cointegration with Applications to the Demand for Money,” Oxford Bulletin of Economics and Statistics, 52, 169-210.
Jensen, M.C., 1986. “Agency costs of free cash flow, corporate finance, and takeovers,” American Economic Review 76, 323-329.
Kanas, A., 1998. “Linkages between the US and European Equity Markets: Further Evidence from Cointegration Tests,” Applied Financial Economics, 8, 607-614.
Kaplan, S. and L. Zingales, 2000. “Investment-cash flow sensitivities are not valid measures of financing constraints,” Quarterly Journal of Economics 115, 707–712.
Kasa, K., 1992. “Common Stochastic Trends in International Stock Markets,” Journal of Monetary Economics, 29, 95-124.
Keynes, J. M., 1936. “The general theory of employment, interest and money.” Harcourt Brace, London.
Kim, Yoonbai, 1990. “Purchasing Power Parity in the Long Run: A Cointegration November 1990, 491-503.
Kim, J. O. and W. Enders, 1991. “Real and Monetary Causes of Real Exchange Rate Movements in the Pacific Rim,” Southern Economic Journal, 57(4), 1061-1070.
Koutmos, G., 1998. “Asymmetries in the Conditional Mean and the Conditional Variance: Evidence from Nine Stock Markets,” Journal of Economics and Business, 50, 277-290.
Kugler, P. and C. Lenz, 1993. “Multivariate Cointegration Analysis and the Long-Run Validity of PPP,” Review of Economics and Statistics, 75(1), 180-184.
Kwiatkowski, D., P. C. B. Phillips, P. Schmidt and Y. Shin, 1992. “Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root,” Journal of Econometrics, 54, 159-178.
Levin, A. and C. F. Lin, 1992. “Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties,” University of California, San Diego, Discussion paper, 92-93.
Levin, A. and C. F. Lin, 1993. “Unit Root Tests in Panel Data: New Results,” University of California, San Diego, Discussion paper, 93-96.
Levin, A., C. Lin and C. J. Chu, 2002. “Unit root tests in panel data: Asymptotic and finite-sample properties,” Journal of Econometrics, 108(1), 1-24
Li, W. K. and K. Lam, 1995. “Modelling Asymmetry in Stock Returns by a Threshold Autoregressive Conditional Heteroscedastic Model,” The Statistician, 44, 333-341.
McConnel, John J. and H. Servaes, 1995. “Equity ownership and the two faces of debt,” Journal of Financial Economics, 39, 131-157.
Mundell, R., 1961. “A Theory of Optimal Currency Areas,” Papers and Proceedings of the American Economic Association, 51, 657-664.
Myers, S. C. and R. G. Rajan, 1998. “The paradox of liquidity,” Quarterly Journal of Economics, 108, 733–771.
Nagayasu, J., 2001. “Currency crisis and contagion: evidence from exchange rates and sectoral stock indices of the Philippines and Thailand,” Journal of Asian Economics, 12, 529-546.
Opler, T., L. Pinkowitz, R. Stulz and R. Williamson, 1999. “The determinants and implications of corporate cash holdings,” Journal of Financial Economics, 52, 3–46.
Ozkan, A. and N. Ozkan, 2004. “Corporate cash holdings: An empirical investigation of UK companies,” Journal of Banking and Finance, 28, 2103–2134.
Patel, Jayendu, 1990. “Purchasing Power Parity as a Long-Run Relation,” Journal of Applied Econometrics, 5, 367-379.
Phillips, P. C. B., 1987. “Time Series Regression with a Unit Root,” Econometrica, 55, 277-301.
Phillips, P. C. B. and P. Perron, 1988. “Testing for a Unit Root in Time Series Regression,” Biometrika, (75), pp.335-346.
Pinkowitz, L., R. Stulz and R. Williamson, 2006. “Does the contribution of cash holdings and dividends to firm value depend on corporate governance? A cross-country analysis,” Journal of Finance, 61, 2725–2751.
Pippenger, M. K., 1993. “Cointegration Tests of Purchasing Power Parity: The Case of Swiss Exchange Rates,” Journal of International Money and Finance, 12, 46-61.
Osterwald-Lenum, M, 1992. “Practitioner's Corner-A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics,” Oxford Bulletin of Economics and Statistics, 54, 461-472.
Ramirez, A. and S. Tadesse, 2007. “Corporate cash holdings, national culture, and multinationality,” William Davidson Institute Working Paper.
Sarno, L., 1997. “Policy Convergence, the Exchange Rate Mechanism and the Misalignment of Exchange Rates:Some Tests of Purchasing Power Parity and Generalized Purchasing Power Parity,” Applied Economics, 29(5), 591-605.
Sheng, H. C., and A. H. Tu, 2000. “A Study of Cointegration and Variance Decomposition Among National Equity Indices Before and During the Period of the Asian Financial Crisis,” Journal of Multinational Financial Management, 10, 345-365.
Siklos, P., 2002. “Asymmetric Adjustment from Structural Booms and Slumps,” Economics Letters, 77, 329-333.
Siklos, P. and C. W. Granger, 1997. “Regime-Sensitive Cointegration with an Application to Interest Rate Parity,” Macroeconomic Dynamics, 3, 640-657.
Soydemir, G., 2000. “International Transmission Mechanism of Stock Market Movements: Evidence from Emerging Equity Markets,” Journal of Forecasting, 19, 149-176.
Stock, J. H. and M. W. Watson, 1998. “Testing for Common Trends,” Journal of the American Statistical Association, 83, 1097-1107.
Tong, H., 1978. On a Threshold Model, in C.H. Chen (ed.), Pattern Recognition and Signal Processing, Amsterdam: Sijthoff & Noordhoff, 101-141.
______, 1983. Threshold Models in Non-Linear Time Series Analysis, New York: Springer-Verlag.
______, 1990. Non-Linear Times Series: A Dynamical Approach, Oxford: Oxford University Press.
Villalonga B. and R. Amit, 2006. “How do family ownership, control and management affect firm value?” Journal of Financial Economics, forthcoming paper.
Woidtke, T., 2002. “Agents watching agents: evidence from pension fund ownership and firm value,” Journal of Financial Economics, 63, 99-131.
Wright, J. H., 1994. “A Co-integration Based Analysis of Irish Purchasing Power Parity Relationships Using the Johansen Procedure,” Economic and Social Review, 25(3), 261-278.