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Corporate financial policy: What really matters?

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  • DeAngelo, Harry

Abstract

Reliable access to funding, as in Myers and Majluf (1984), is what really matters, but there are nontrivial indeterminacies in how such access is arranged and in the debt, cash-balance, and payout components of financial policy. These inferences are from a corporate “twins” comparison study of the financial policies of Henry Ford at Ford Motor Co. and Alfred P. Sloan, Jr. at General Motors Corp. The documented testimony of Ford and Sloan indicates that both focused on funding their business, with debt as a funding tool, not an element of an optimized leverage ratio. Their financial policies differ in five important respects, including (i) the use of debt versus large cash balances to meet funding needs and (ii) a commitment to paying large dividends versus a strong aversion to payouts. The data also point to the importance of the inability of managers to identify optimal policies with reliable precision.

Suggested Citation

  • DeAngelo, Harry, 2021. "Corporate financial policy: What really matters?," Journal of Corporate Finance, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:corfin:v:68:y:2021:i:c:s0929119921000468
    DOI: 10.1016/j.jcorpfin.2021.101925
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    2. Simshauser, Paul, 2023. "On dividend policy and market valuations of Australia’s listed electricity utilities: Regulated vs. merchant," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 696-715.
    3. Dudley, Evan, 2021. "Social capital and entrepreneurial financing choice," Journal of Corporate Finance, Elsevier, vol. 70(C).

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    More about this item

    Keywords

    Capital structure; Payout policy; Cash balances; Corporate financial policy;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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