A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

Posted: 4 Nov 2016

See all articles by Robert W. Faff

Robert W. Faff

University of Queensland

Stephen Gray

University of Queensland - Business School; Duke University - Fuqua School of Business; Financial Research Network (FIRN)

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2016

Abstract

This article uses a survey of Australian corporate treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the global financial crisis (GFC) to examine the effect of liquidity shocks on a firm’s capital structure choices. We then compare our Australian survey results with results from a comprehensive US survey conducted by Graham and Harvey. Our survey shows that the board of directors plays the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of chief executive officer (CEO) in both capital structure and cash holding decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the US empirical studies. Finally, we juxtapose the theory–practice perspective, with a review of the most recent 5 years (2011–2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

Keywords: Capital structure, corporate finance, survey

Suggested Citation

Faff, Robert W. and Gray, Stephen and Tan, Kelvin Jui Keng, A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice (November 1, 2016). Australian Journal of Management, Vol. 41, No. 4, 2016. Available at SSRN: https://ssrn.com/abstract=2864518

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Stephen Gray

University of Queensland - Business School ( email )

University of Queensland
Brisbane, Queensland 4072
Australia

Duke University - Fuqua School of Business

Box 90120
Durham, NC 27708-0120
United States

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Kelvin Jui Keng Tan (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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