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Financial Conservatism. Determinants of cash and leverage conservatism in UK firms.
Finance & Accounting
Pages 20 (5020 words)
Financial Conservatism: Determinants of cash and leverage conservatism in UK firms Name: Course: Professor: Institution: City and State: Date: Contents Introduction 3 Literature review 5 Introduction 5 Financial flexibility motive and agency theory 6 Ownership structure 9 Empirical Framework and Data Description: 11 The model for leverage conservatism 11 Data description 11 Low Leverage model 12 The whole sample 13 Sub samples 13 Test of equality 18 Correlation matrix (whole sample) 20 Conclusion 23 Financial Conservatism: Determinants of cash and leverage conservatism in UK firms Introduction The meaning of the term financial conservatism can be understood in different contexts, depending on
A firm that holds large cash balances essentially means the one that holds more than 25% of its assets in cash and cash equivalents for five consecutive years. Elsewhere, Minton and Wruck (2001) defines a financially conservative firm as the one that continually assumes low leverage policy; that is, if for five consecutive years its total debt to total asset ratio is categorized in the first 20% of all entities in a particular category. In this analysis, both cash conservative and leverage conservative firms will be taken into account. The essence of investigation of the two policies at the same is to find out if a firm can use leverage conservative policy in the place of cash conservative policy or vice versa. ...
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