StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Corporate investment: Financial Market Imperfection - Dissertation Example

Cite this document
Summary
Studies have revealed a constant fall in the sensitivity of cash flow for a number of years, especially after the 1970s. The issue of imperfection of the capital market controls the fall in the level of cash-flow sensitivity for a specific period of time. Flow of funds reduces the sensitivity of cash flow of all companies…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER91.3% of users find it useful
Corporate investment: Financial Market Imperfection
Read Text Preview

Extract of sample "Corporate investment: Financial Market Imperfection"

Download file to see previous pages

In the middle of perfect capital market, the decision on a company’s investment ought not to be altered by the firm’s financing positions. The imperfection on capital market nevertheless, brings in a barrier the costs of external cash flow and the internal funds. Companies that are facing greater levels of imperfection in information exhibits wider barriers hence they possess more sensitive investment that affect decisions of investment and financing. This study explores evidence showing that the investments firms that are financially constrained are very sensitive to the amount of internal funds that the firm can access.

Referring to Some recent studies, there have been other evidences which indicate that the estimated sensitivity on cash flow has reduced in the 30 years between 1970 and 2000. This decrease in the cash- flow sensitivity indicates the possibility of the intervention between investment market imperfections for this two decades’ period. In this study, we begin by verifying the outcome that the sensitivity of the cash flow has been declining through the years. The next step involves the process of exploring the causes of the decline.

This verification takes place by evaluating a number of factors associated with the capital market imperfections, including the aggregate measure of fund flows, the institutional ownership, corporate governance and the analyst’s account of the firm’s legacy. . The next step involves the process of exploring the causes of the decline. This verification takes place by evaluating a number of factors associated with the capital market imperfections, including the aggregate measure of fund flows, the institutional ownership, corporate governance and the analyst’s account of the firm’s legacy.

For a period of the last two to three decades, this study reveals a constant rise in the level of investments through firms like retirement funds and mutual funds. The rise in these sources of fund flows majorly occurs due to the rise in the firms’ market liquidity for a period of time. Structure of the work This study seeks to explore hypothesis that even though the final rise in the levels of fund flows leads to the fall in imperfections related to liquidity for every firm, the result is usually greatest on the companies with large shareholdings.

It tests the hypothesis by using the aggregate funds data and analyzing the effects of institutional ownership on the potential sources of external financing of small growth institutions. The study presents 2 opposite views without any distinct conclusions. The second hypothesis that this study explores is the fact that mutual funds usually goes for stocks with high flow of information as well as liquidity. It analyzes the equity ownership in the U.S. companies and declares whether the institutions indeed prefer the high share turnover stocks of the old and large value.

We will describe this as the liquidity preference of companies. 1. Literature Review 2.1. The main Results of the Topic Studies have shown that corporate institutions are more active in trade than individual investors. Additionally, assets

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Corporate investment: Financial Market Imperfection Dissertation”, n.d.)
Retrieved from https://studentshare.org/finance-accounting/1404021-choose-from-the-list
(Corporate Investment: Financial Market Imperfection Dissertation)
https://studentshare.org/finance-accounting/1404021-choose-from-the-list.
“Corporate Investment: Financial Market Imperfection Dissertation”, n.d. https://studentshare.org/finance-accounting/1404021-choose-from-the-list.
  • Cited: 0 times

CHECK THESE SAMPLES OF Corporate investment: Financial Market Imperfection

Issues in Corporate Finance: Trade-off Theory

Another important idea posited by the theory is that the optimal debt structure seen among strong firms pertains to combinations of bank and market debt.... Basically, strong firms have become adept in successfully managing both bank and market debts.... The concept developed by Modigliani and Miller (1958) revolves on the market imperfections that eventually affect capital structures.... Indeed, market imperfections occur in several forms....
10 Pages (2500 words) Assignment

Impact of Market Imperfections on International Capital Markets

The sole objective of the market participants is to maximize the economic profits.... When these conditions do not hold then there occur the imperfections in the market and the resultant gaps in the capital supply.... This paper makes an assessment of the impact of the market imperfections on the functioning of the international capital markets.... The perfect market is an economic model which describes a hypothetical market condition in which no producer or consumer has an absolute control to influence the prices....
11 Pages (2750 words) Essay

Analysis of Dividend Policy

This literature review discusses dividend policy and the capital market structure of the firm.... The dividend policy and the capital market structure of the firm can be examined with reference to a number of theories.... Asset substitution effect Assuming that projects are riskier, there is still a fairer chance of success against failure thus obliging both debt-holders and shareholders to condone such risky investment decisions on the part of managers....
10 Pages (2500 words) Literature review

Efficiency Market Hypothesis in 2008

Efficient market Hypothesis (EMH) holds that stocks or shares trade at their fair value thus preventing buyers and sellers from gaining unduly from market inefficiency.... In other words since the market functions efficiently investors cannot buy undervalued shares or sell overvalued shares.... For example according to financial theory there are efficient stock markets that especially don't permit market manipulation by investors....
9 Pages (2250 words) Essay

Fundamentals of Corporate Finance

High returns definitely accompany higher risks, but as it is stated in the question that the investors are high-risk takers, they can opt for the combination which maximizes the value of their investment, which is the combination of projects b and d.... The paper is based on the decision for the combination of stocks in order to maximize the return to the investors should incorporate two measures: the portfolio return of the combination, as well as the portfolio risk which is measured by the standard deviation of the portfolio....
9 Pages (2250 words) Assignment

Effect of Taxation on the Investment Decision in Firms

The "Effect of Taxation on the investment Decision in Firms" paper examines the effects of taxation on high-risk investment decisions.... This paper explains the various aspects that need to be considered in high-risk decision making and then explains the effect of taxation on investment decisions.... The government, in order to maintain regular investment in these sectors, follows a three-point approach.... The investment decision of firms depends upon various factors like the political will and stability, the infrastructure and the tax regime....
6 Pages (1500 words) Research Paper

Relevance of the Firm's Capital Structure

The paper “Relevance of the Firm's Capital Structure» states that despite imperfections in competitive financial markets, it's possible to develop efficient capital markets through substantial promotion of free market forces.... Functional efficiency of the capital market is determined by a number of factors including the government's regulatory mechanisms.... Assuming that the capital market functions efficiently, there won't be the need to manipulate this capital structure as advocated under various theories....
13 Pages (3250 words) Assignment

Foreign Direct Investment

Firms need to internalize operations to control structural and transaction costs that result from the imperfect nature of product and technology market (Vernon, 1966), as well as, imperfections in the financial market (Rugman, 1982).... In the paper “Foreign Direct Investment” the author compares and contrasts explanations for horizontal Foreign Direct Investment (FDI) in the market imperfections approach, Vernon's product lifecycle theory, Knickerbockers' theory of FDI....
10 Pages (2500 words) Dissertation
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us