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Economic studies which examine the financing patterns of firms, particularly in emerging markets seldom consider the market environment in which they operate. The most recent Asian financial crisis and its exposure of institutional failures in the context of financial sector liberalization show that these market conditions are vital. The positive relationship between a firms excess cash flow and investment are well known but the environment which determines retention of cash as opposed to paying dividends remains unresolved. The results of this survey suggest a framework by which future research in data collection, theoretical analysis and empirical testing may be undertaken.
List of contents
Introduction Internal Finance as a Source of Investment: Managerial/Principal Agent or Asymmetric Information Approach Cash Retention Strategies: Test of Free Cash Flow Theory The Cost of Capital: Earnings Retention vs. Leverage Earnings Retention as a Specification Mechanism in Predicting Corporate Bankruptcy Factors Affecting the Market for Corporate Control Conclusion
About the author
RAHUL DHUMALE is presently with the Policy and Analysis Group at the Federal Reserve Bank of New York. He has previously worked as a consultant with the World Bank, International Labour Organisation, the UNDP, and the International Monetary Fund. He holds an A.B. from Duke University, MSc. from Oxford University, and a Ph.D. from Cambridge University. Most recently, he was a member of the Faculty at Cambridge University where he taught and worked on issues related to financial regulation and corporate finance. He is presently also a Senior Fellow at the University of London.
Summary
Economic studies which examine the financing patterns of firms, particularly in emerging markets seldom consider the market environment in which they operate. The most recent Asian financial crisis and its exposure of institutional failures in the context of financial sector liberalization show that these market conditions are vital. The positive relationship between a firms excess cash flow and investment are well known but the environment which determines retention of cash as opposed to paying dividends remains unresolved. The results of this survey suggest a framework by which future research in data collection, theoretical analysis and empirical testing may be undertaken.
Additional text
'This book focuses on important issues in relation to emerging markets: corporate governance, corporate finance, financial liberalisation and financial regulation. The significance of these issues has been highlighted by the recent Asian crisis. Dr Dhumale's book is therefore extremely timely. He provides a penetrating analysis of these issues with particular reference to the Indian economy. Economists in financial institutions, in universities and government will be greatly in Dr Dhumale's debt for this significant and original research study which focuses on a major emerging market, but which has much wider application.' - Ajit Singh, Professor of Economics, Cambridge University
Report
'This book focuses on important issues in relation to emerging markets: corporate governance, corporate finance, financial liberalisation and financial regulation. The significance of these issues has been highlighted by the recent Asian crisis. Dr Dhumale's book is therefore extremely timely. He provides a penetrating analysis of these issues with particular reference to the Indian economy. Economists in financial institutions, in universities and government will be greatly in Dr Dhumale's debt for this significant and original research study which focuses on a major emerging market, but which has much wider application.' - Ajit Singh, Professor of Economics, Cambridge University
