Sean Cleary

The U-Shaped Investment Curve: Theory and Evidence

This paper examines how the investment of financially constrained firms varies with their level of internal funds. We develop a theoretical model of optimal investment under financial constraints. Our model endogenizes the costs of external funds and allows for negative levels of internal funds. We show that the resulting relationship between internal funds and investment is U-shaped. In particular, when a firms internal funds are negative and sufficiently low, a further decrease leads to an increase in investment. This effect is driven by the investors participation constraint: when part of any loan must be used to close a financing gap, the investor will provide funds only if the firm invests at a scale large enough to generate the revenue that enables the firm to repay. We test our theory using a data set with close to 100,000 firm-year observations. The data strongly support our predictions. Among other results, we find a negative relationship between measures of internal funds and investment for a substantial share of financially constrained firms. Our results also help to explain some contrasting findings in the empirical investment literature.

Do Emerging Market Firms Follow Different Dividend Policies From U.S. Firms

We find that emerging market firms exhibit dividend behavior similar to U.S. firms, in the sense that dividends are explained by profitability, debt, and the market-to-book ratio. However, empirical dividend policy equations are structurally different, indicating different sensitivities to these variables. Additionally, emerging market firms seem to be more affected by asset mix, which seems to be due to their greater reliance on bank debt. Overall, country factors are as important in dividend policies as previous studies find them to be in capital structure decisions. 2003 The Southern Finance Association and the Southwestern Finance Association.

Ductal pancreatic cancer modeling and drug screening using human pluripotent stem cell- and patient-derived tumor organoids

There are few in vitro models of exocrine pancreas development and primary human pancreatic adenocarcinoma (PDAC). We establish three-dimensional culture conditions to induce the differentiation of human pluripotent stem cells into exocrine progenitor organoids that form ductal and acinar structures in culture and in vivo. Expression of mutant KRAS or TP53 in progenitor organoids induces mutation-specific phenotypes in culture and in vivo. Expression of TP53R175H induces cytosolic SOX9 localization. In patient tumors bearing TP53 mutations, SOX9 was cytoplasmic and associated with mortality. We also define culture conditions for clonal generation of tumor organoids from freshly resected PDAC. Tumor organoids maintain the differentiation status, histoarchitecture and phenotypic heterogeneity of the primary tumor and retain patient-specific physiological changes, including hypoxia, oxygen consumption, epigenetic marks and differences in sensitivity to inhibition of the histone methyltransferase EZH2. Thus, pancreatic progenitor organoids and tumor organoids can be used to model PDAC and for drug screening to identify precision therapy strategies.

Dividend policy and the organization of capital markets

The hypothesis that dividend policy serves as a signaling mechanism and also serves to control managerial opportunism is usually supported by empirical studies showing that firms in developed countries (e.g. the USA) smooth their dividends as noted by Lintner (Am. Econ. Rev. 46 (1956) 97). However, the theoretical justification for these results largely stems from models based on arms length contracting in capital markets. In contrast, most emerging markets have a bank centered financial system, where contracting is not normally at arms length. Consequently, this paper compares the dividend policy of companies from eight emerging markets to the policies adopted by 100 US firms over the same period. Firms in these emerging markets have more unstable dividend payments than their US counterparts. Regression results indicate that dividends are much less sensitive to past dividends. These results support the substitute view of dividend policy on the premise that the institutional structures of these developing countries make dividends a less viable mechanism for signaling and for reducing agency costs than for their US counterparts operating in more highly developed arms length capital markets.

Dividend Smoothing and Debt Ratings

We find that firms that regularly access public debt (bond) markets are more likely to pay a dividend and subsequently follow a dividend smoothing policy than firms that rely exclusively on private (bank) debt. In particular, firms with bond ratings follow a traditional Lintner (1956) style dividend smoothing policy, where the influence of the prior dividend payment is very strong and the current dividend is relatively insensitive to current earnings. In contrast, firms without bond ratings flow through more of their earnings as dividends and display very little dividend smoothing behavior. In effect, they seem to follow a residual dividend policy.

Institutional Investment Horizon and Investment-Cash Flow Sensitivity

This paper examines the relevance of institutional investors’ investment horizon, as reflected in the response of firm investment to internal cash flows. We argue that institutional investors with longer investment horizons have greater incentives and efficiencies to engage in effective monitoring. This improved monitoring mitigates asymmetric information and agency problems, and in turn reduces the wedge between the costs of internal and external funds. As a result, the sensitivity of firms’ investment outlays to internal cash flows decreases in the presence of institutional investors with long-term investment horizons. Using a sample of 8402 US firms over the period 1981–2008, we provide empirical evidence consistent with these arguments.

Association of distinct mutational signatures with correlates of increased immune activity in pancreatic ductal adenocarcinoma

Importance Outcomes for patients with pancreatic ductal adenocarcinoma (PDAC) remain poor. Advances in next-generation sequencing provide a route to therapeutic approaches, and integrating DNA and RNA analysis with clinicopathologic data may be a crucial step toward personalized treatment strategies for this disease. Objective To classify PDAC according to distinct mutational processes, and explore their clinical significance. Design, Setting, and Participants We performed a retrospective cohort study of resected PDAC, using cases collected between 2008 and 2015 as part of the International Cancer Genome Consortium. The discovery cohort comprised 160 PDAC cases from 154 patients (148 primary; 12 metastases) that underwent tumor enrichment prior to whole-genome and RNA sequencing. The replication cohort comprised 95 primary PDAC cases that underwent whole-genome sequencing and expression microarray on bulk biospecimens. Main Outcomes and Measures Somatic mutations accumulate from sequence-specific processes creating signatures detectable by DNA sequencing. Using nonnegative matrix factorization, we measured the contribution of each signature to carcinogenesis, and used hierarchical clustering to subtype each cohort. We examined expression of antitumor immunity genes across subtypes to uncover biomarkers predictive of response to systemic therapies. Results The discovery cohort was 53% male (n = 79) and had a median age of 67 (interquartile range, 58-74) years. The replication cohort was 50% male (n = 48) and had a median age of 68 (interquartile range, 60-75) years. Five predominant mutational subtypes were identified that clustered PDAC into 4 major subtypes: age related, double-strand break repair, mismatch repair, and 1 with unknown etiology (signature 8). These were replicated and validated. Signatures were faithfully propagated from primaries to matched metastases, implying their stability during carcinogenesis. Twelve of 27 (45%) double-strand break repair cases lacked germline or somatic events in canonical homologous recombination genes—BRCA1, BRCA2, or PALB2. Double-strand break repair and mismatch repair subtypes were associated with increased expression of antitumor immunity, including activation of CD8-positive T lymphocytes (GZMA and PRF1) and overexpression of regulatory molecules (cytotoxic T-lymphocyte antigen 4, programmed cell death 1, and indolamine 2,3-dioxygenase 1), corresponding to higher frequency of somatic mutations and tumor-specific neoantigens. Conclusions and Relevance Signature-based subtyping may guide personalized therapy of PDAC in the context of biomarker-driven prospective trials.

Institutional Investment Horizons and the Cost of Equity Capital

We examine the influence of institutional investors’ investment horizons on a firm’s cost of equity. We argue that the cost of equity will decrease in the presence of institutional investors with longer-term investment horizons due to improved monitoring and information quality. Our empirical results demonstrate that the cost of equity declines in the presence of institutional investors with long-term investment horizons, all else remaining equal. Our results indicate also that the monitoring role of long-term institutional investors is more pronounced for firms with higher agency problems (poorly governed firms). Overall, our evidence suggests that when considering the influence of institutional investors, it is critical to account for institutional heterogeneity, which gives rise to new directions for future research.

Outcome of Adjuvant Therapy in Biliary Tract Cancers.

Objective:There are high rates of recurrence after definitive surgery in biliary tract cancer patients. We reviewed the use and effectiveness of adjuvant therapy (AT; chemotherapy±radiotherapy) in a single institution series. Methods:Characteristics, treatment details, and follow-up data of all patients with biliary tract cancer who had definitive surgery from January 1987 to September 2011 were reviewed. The association between baseline variables and disease-free survival/overall survival (OS) were tested using Cox proportional hazard analysis in the univariable and multivariable settings. Results:Analysis included 296 patients (58% male; median age, 63 y). Negative or microscopically positive resections were reported in 42% and 14%, respectively, with 44% not reported. Node positivity was reported in 35% patients. AT was given in 28% of patients with 59% receiving chemotherapy and 35% concurrent chemotherapy/radiotherapy. Disease recurred in 60% patients. AT was associated with significantly improved OS (hazard ratio, 0.41; P=0.02). Compared with R0 resection, patients with R1 resection derived significantly increased benefit from AT (P for difference 0.02). In the node positive population (n=103), AT was associated with significantly improved OS (hazard ratio, 0.60; 95% confidence interval, 0.38-0.95; P=0.03). Conclusions:Patients with R1 resection and node positive disease receiving AT after definitive surgery seem to derive OS advantage. Large prospective trials are needed to confirm these data.

Corporate investment and financial slack: international evidence

Purpose – To address the empirical aspect of corporate investment patterns by providing evidence in an international setting regarding the critical factors affecting firm investment policy, focusing on the relevance of financial factors. Design/methodology/approach – Examines international company-level data for capital expenditures over the period 1987-1997 using fixed effects regression analysis. Findings – The capital expenditures of firms that are financially constrained are much less sensitive to the availability of internal funds than unconstrained firms. The evidence is particularly strong when firms are classified according to financial health, but is also prevalent for groups formed according to dividend behavior and firm size. The results provide strong support for the generality of the results of Kaplan and Zingales and Cleary. A major reason for the weak investment-cash flow sensitivity displayed by unhealthy firms is that they appear to be busy building up financial slack, which has long-term value, as postulated by Myers and Majluf. Research limitations/implications – The conclusions in this study relate to the investment behavior of firms operating in well-developed economies, which may not necessarily hold for firms operating in distinctly different environments. Given the critical importance of stimulating investment in developing economies, an interesting topic for future research would be to extend the analysis to firms operating in developing country environments to see whether the results herein also apply in these environments. Originality/value – The results extend empirical evidence to an international setting, providing support for previous US results that had contributed to a debate in the literature. The results also demonstrate that a major reason for the weak investment-cash flow sensitivity displayed by unhealthy firms is that they are reluctant to invest when debt levels increase, irrespective of the availability of internal funds. This represents an original contribution to the empirical literature.