RIPHAH INTERNALTIONAL UNIVERSITY

Article: A Contemporary View of Corporate

Finance Theory, Empirical Evidence and
Practice

Subject: Strategic Finance

Name: Hassan Nawaz

CMS No:400638

Submitted To: Dr Sajjad Nazir

Summary
The paper is written about Finance Theory which are using practical in these days. The Survey
shows that what are the Pons and Cons of Today Finance Theory.
Much of the previous research on firms capital structure choices takes an analytical approach
that is tested empirically. Using a survey method, we aim to bridge this gap between theory and
practice, as surveys provide an opportunity to ask qualitative questions about what corporate
treasurers actually consider when making capital structure choices questions that an analytical
approach and economic modeling cannot readily answer. firms, with only limited investigation of
other countries, and very little consideration of the Australian practice, especially after the most
recent Global Financial Crisis (GFC).So far, international surveys do not always find consistency
across responses by Chief Financial Officers (CFOs) to capital structure decisions across
countries. Survey finding of Graham and Harvey (2001) that most of their CFO respondents
identify financial flexibility to be the most important factor in determining their debt level.
The majority of respondents were either Treasurer or Treasury Managers, followed by other
financial management positions such as Funding Analyst or Treasury Accountant, while a
relatively small percentage identified as the CFO.
The survey result shows that the board of directors plays the most important role in determining
capital structure decisions. Second the survey indicates that labor unions and external parties
such as employees, debt holders and bankers play an insignificant role in determining financial
leverage decisions. Also respondents indicate that they do not often engage with external
parties to determine desired leverage, 39% do not, 54% have some engagement, 7%
respondents engage extensively.
Dividend reinvestment (55%), debt buybacks (55%) and share buybacks (45%) are also used
as tools to manage capital. The most commonly used criteria in assessing which approach will
be used to manage capital by the respondents are liquidity constraints (82%), market conditions
(68%), and corporate tax consequences (59%).
They interpret their results, in the spirit of Kaplan and Zingales, as CEOs with higher inside debt
holding acting in a risk-averse manner by avoiding external financing, hence amplifying the
investment-cash sensitivity.

The survey asked respondents to categories different decision makers according to their
importance in determining the organizations cash holding level .56% of respondents indicated
that the Treasurer is very important in determining the organizations cash holding level, followed
by the CFO .By contrast, much of the cash holdings literature focuses more on how cash
holdings are influenced by the CEOs compensation package including the CEOs inside debt

holdings and the CEOs options holdings .In unreported results, the data indicated that the
percentage of respondents who classified the Boards role in determining cash holding level as
less important was equal to the percentage classifying the Boards role as very important.

The both initial public offerings and seasoned equity offerings, most papers published in Asia
Pacific Journals show that there is under pricing.SEO papers propose that SEO firms should
have a credit rating, a higher government holding, or a warrant compensation offer.
Maybe, instead of debating the interpretation of investment-cash flow sensitivity, it might be
more fruitful for future research to find out what really determines firms investment-cash flow
sensitivity.