A basic question in finance asks to what extent capital should be provided to firms beyond current investment needs in anticipation of funding future investment opportunities. Up front funding lowers a firm’s financing costs by reducing transactions costs associated with subsequent trips to the capital market.
If, however, future investment opportunities fail to materialize, funds provided up front constitute a free cash flow that managers can squander on other negative net present value projects [Jensen (1986)]. Thus, while sequential financing (providing funding in stages) increases issuance costs, it reduces the free cash flow agency costs of overinvestment. In this study, we examine the extent to which the sequential financing problem can explain the timing of capital infusions in a sample of newly public firms.
In the course of a busy day, you may write a check at the grocery store, charge tickets to a ball game, rent a car, mail your tax returns, change service providers for your cell phone, or apply for a credit card. Chances are you don’t give these everyday transactions a second thought. But an identity thief does.
Identity theft is a serious crime. People whose identities have been stolen can spend months or years and thousands of dollars cleaning up the mess the thieves have made of a good name and credit record. In the meantime, victims of identity theft may lose job opportunities, be refused loans for education, housing, or cars, and even get arrested for crimes they didn’t commit. Humiliation, anger, and frustration are among the feelings victims experience as they navigate the process of rescuing their identity.
The saving behavior of the wealthy has received remarkably little academic attention in the past twenty years or so. This is probably largely attributable to a relative lack of good data: The Survey of Consumer Finances is virtually the only publicly available source of detailed data on wealthy households, and even the SCF has only a few hundred really wealthy households in each triennial wave. Despite recent neglect, the topic is an important one for scholars of saving behavior, for at least two reasons. First, wealthy households should provide a powerful means of testing whether the standard model of consumer behavior, the Life Cycle/Permanent Income Hypothesis, is adequate as a universal model of saving and consumption. This is an application of the general scientific principle that models should be tested under extreme conditions; if they do not hold up, a new model (or an extended version of the old one) is called for. The second reason for studying the wealthy is that they account for a large share of aggregate wealth. In fact, some understanding of the saving behavior of the wealthy is probably indispensable to any credible attempt to account for the magnitude of aggregate wealth.
Although the primary source of evidence in this paper will be the four Surveys of Consumer Finances conducted in 1983, 1989, 1992, and 1995, the inevitable limitations of those data will be apparent. The paper therefore also relies to a considerable extent on unorthodox kinds of evidence, ranging from information in the annual Forbes 400 tabulation of the richest American households, to quotations from and about the very rich, to the results of a “focus group” meeting with a set of wealthy individuals who were directly asked their reasons for saving.
