Long‐Term Financing Decisions: Views and Practices of Financial Managers of NYSE Firms

Ravindra R. Kamath

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Corporate Finance and Governance Financial Analysis and Corporate Governance Working Capital and Financial Performance

Abstract

Abstract This paper reports the findings of a 1990 survey of a sample of NYSE firms conducted to learn about the managerial opinions and practices with respect to longterm financing decisions. Relying on a hierarchy of financing sources is discovered to be a far more common practice among the sample firms than maintaining a target capital structure. The risk‐return dimensions of the investment being financed are found to be the most important inputs in determining financing decisions. In spite of the perceived lack of fairness in the market pricing of their securities, the sample firms do not report making financing decisions to signal a need for reevaluation of their securities. Financial managers display a much greater flexibility with capital structure decisions than with either dividend policy decisions or investment decisions. The firms which attempt to maintain target capital structures are found to perceive the average debt ratios in their respective industries to be important determinants of their own debt ratios. The firms which follow financing hierarchies on the other hand, are found to view their firms' past profits and past growth to be important determinants of their debt ratios.

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References

1984Corporate financing and investment decisions when firms have information that investors do not have 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1977Determinants of corporate borrowing 2008The cost of capital, corporation finance and the theory of investment 1984The Capital Structure Puzzle 1988The Determinants of Capital Structure Choice 1985Dividend Policy under Asymmetric Information 1984The Capital Structure Puzzle

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