ON THE FINANCIAL POLICY OF LARGE MATURE CORPORATIONS (CAPITAL STRUCTURE, CASH MANAGEMENT, DIVIDEND POLICY)

The central idea throughout the thesis is the dependence of firms upon internally generated funds. A very general theoretical model is presented in the first chapter, wherein it is demonstrated that it ought to be rational for firms to borrow when retained earnings are insufficient to fund desired investment. This is proffered as an explanation for why observed cross-sectional debt leverage varies inversely with past profits. The key underlying necessary assumption in the model is impacted asymmetric information between managers and outside investors, which results in prohibitive impediments to new equity issues, and constraints upon dividends.;The second chapter concentrates upon dividend policy. It is shown that one would expect dividends to be constrained given the historical context. It is also shown that the Lintner model appears to be an apt description of corporate behavior. The third chapter looks closely at empirical evidence as to the determinants of debt ratios. There it is concluded that the primary causal factors appears to be funding pressures. Finally, in chapter four, corporate liquidity is examined, and it is found that if any element of capital structure is continuously optimized and is sensitive to risk, it is holdings of marketable securities. It is further found that the major source of risk appears to be competitive factors.