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The Interactions between the Investment, Financing, and Dividend Decisions of Major U.S. Firms

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  • Pruitt, Stephen W
  • Gitman, Lawrence J

Abstract

This paper uses 114 responses to a June 1988 mail questionnaire survey of the financial managers of the 1,000 largest U.S. firms to examine Modigliani and Miller's "separation principle." The opinions of practicing financial managers were found to be consistent with Modigliani and Miller as well as with the work of other empirical researchers. Almost without exception, the direction of causality between investment and financing decisions was found to run from the former to the latter, and dividend decisions were found to be driven by profits and prior year's dividends rather than by the firm's investment and financing actions. Clearly, the beliefs of practicing financial managers seem to reflect acceptance of Modigliani and Miller's "separation principle." Copyright 1991 by MIT Press.

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Bibliographic Info

Article provided by Eastern Finance Association in its journal The Financial Review.

Volume (Year): 26 (1991)
Issue (Month): 3 (August)
Pages: 409-30

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Handle: RePEc:bla:finrev:v:26:y:1991:i:3:p:409-30

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Web page: http://www.easternfinance.org/
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Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

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Cited by:
  1. Adaoglu, Cahit, 2000. "Instability in the dividend policy of the Istanbul Stock Exchange (ISE) corporations: evidence from an emerging market," Emerging Markets Review, Elsevier, vol. 1(3), pages 252-270, November.
  2. Zyblock, Miles, 1997. "Corporate Financial Leverage: A Canada - U.S. Comparison, 1961-1996," Analytical Studies Branch Research Paper Series 1997111e, Statistics Canada, Analytical Studies Branch.
  3. Gürtler, Marc & Hartmann, Nora, 2003. "Behavioral dividend policy," Working Papers FW04V1, Technische Universität Braunschweig, Institute of Finance.
  4. Rozycki, John J., 1997. "A tax motivation for smoothing dividends," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(2), pages 563-578.
  5. Nabaraj Adhikari Ph.D., 2014. "Managers’ Views on Dividend Policy of Nepalese Enterprises," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 26(1), pages 90-120, April.
  6. Wang, David Han-Min, 2010. "Corporate investment, financing, and dividend policies in the high-tech industry," Journal of Business Research, Elsevier, vol. 63(5), pages 486-489, May.
  7. Sheikh Taher Abu, 2012. "Determinants of dividend payout policy: Evidence from Bangladesh," International Journal of Economic Practices and Theories, Academy of Economic Studies - Bucharest, Romania, vol. 2(3), pages 119-126, July.
  8. Bhat Ramesh & Pandey I M, . "Dividend Behaviour of Indian Companies Under Monetary Policy Restrictions," IIMA Working Papers WP2004-05-07, Indian Institute of Management Ahmedabad, Research and Publication Department.
  9. P. S. Sanju & P. S. Nirmala & M. Ramachandran, 2011. "Are dividend and investment decisions separable?," Applied Financial Economics, Taylor & Francis Journals, vol. 21(20), pages 1515-1524.
  10. Baker, H. Kent & Powell, Gary E. & Veit, E. Theodore, 2002. "Revisiting the dividend puzzle: Do all of the pieces now fit?," Review of Financial Economics, Elsevier, vol. 11(4), pages 241-261.
  11. Baker, H. Kent & Smith, David M., 2006. "In search of a residual dividend policy," Review of Financial Economics, Elsevier, vol. 15(1), pages 1-18.
  12. Zyblock, Miles, 1997. "L'effet de levier financier des entreprises : une comparaison entre le Canada et les E.-U., 1961-1996," Direction des etudes analytiques : documents de recherche 1997111f, Statistics Canada, Direction des etudes analytiques.
  13. Baker, H. Kent & Mukherjee, Tarun K. & Paskelian, Ohannes George, 2006. "How Norwegian managers view dividend policy," Global Finance Journal, Elsevier, vol. 17(1), pages 155-176, September.

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