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AN INVESTIGATION INTO THE CAUSALITY AMONG FIRMS' DIVIDEND, INVESTMENT, AND FINANCING DECISIONS
Author(s) -
Mougoué Mbodja,
Mukherjee Tarun K.
Publication year - 1994
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1994.tb00162.x
Subject(s) - interdependence , dividend , investment decisions , causality (physics) , autoregressive model , investment (military) , corporate finance , econometrics , business , information asymmetry , finance , economics , financial economics , behavioral economics , physics , quantum mechanics , politics , political science , law
In this paper we posit that information asymmetries and the resultant signaling implications make a firm's investment decision dependent on its dividend and financing decisions. By applying the vector autoregressive modeling technique to 100 firms randomly selected from ten four‐digit SIC industries, we find evidence of interdependencies among the three decisions. The success of the model in predicting each of the three decision variables also suggests that these decisions should be analyzed in a simultaneous equation framework.