The Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies

Posted: 6 Sep 2006

See all articles by Clifford W. Smith

Clifford W. Smith

Simon Graduate School of Business, University of Rochester

Ross L. Watts

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Abstract

We examine explanations for corporate financing-, dividend-, and compensation-policy issues. We document robust empirical relations among corporate policy decisions and various firm characteristics. Our evidence suggests contracting theories are more important in explaining cross-sectional variation in observed financial, dividend, and compensation policies than either tax-based or signaling theories.

Keywords: Investment opportunity set, financing policy, dividend policy, compensation policy

JEL Classification: G31, G32, G35, J33

Suggested Citation

Smith, Clifford W. and Watts, Ross L., The Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies. Journal of Financial Economics, Vol. 32, 1992. Available at SSRN: https://ssrn.com/abstract=928666

Clifford W. Smith (Contact Author)

Simon Graduate School of Business, University of Rochester ( email )

Carol Simon Hall 3-202C
Rochester, NY 14627
United States
585-275-3217 (Phone)
585-442-6323 (Fax)

Ross L. Watts

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States

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