Perspectives on the Theory and Practice of Corporate Finance
Volume: 8 Topics in Corporate Finance
Price: € 20.00
One of the important challenges for financial economists is to understand the financial practices of corporations. How do corporations choose their financial structure? Why do they finance themselves the way they do? Simultaneously, the practitioners look for prescriptions. How should they choose their financial policy? Observing the many textbooks on corporate finance one would expect that prescriptions can easily be found. The reality is however that despite the enormous output of academic research in corporate finance, very little is produced that gives specific guidance to financial executives.
Against this backdrop the Amsterdam Center for Corporate Finance (ACCF) has decided to devote this issue of its discussion series ”Topics in Corporate Finance” to trying to bridge the gap between theory and practice. In the first contribution, Professor Vojislav Maksimovic explicitly addresses how firms should choose their financial structure. His insights are that competitive considerations should be the key driving force, and also that financial structure decisions should be an integral part of a firm’s overall risk management. His analysis shows how complex the issues are, partially explaining the lack of specific guidance that comes from corporate finance theory.
The second contribution reports on a survey among European CFO’s. Professors Brounen, De Jong and Koedijk have succeeded in bringing together the opinions of a large sample of financial decision makers from the UK, the Netherlands, Germany and France on key corporate finance issues. They conclude that there is a wide variation in corporate finance practices, and that the variation appears to be influenced mostly by firm size and to a lesser extent by the degree of shareholder orientation. Nationality per se does not have a significant explanatory power.