This thesis investigates some possible cross sectional determinants of corporate capital structure and dividend policy. In particular, the impact on policy choice of firm level differences in investment opportunities, firm size, regulation and profitability is examined.
This study potentially expands knowledge for a number of reasons. First, determinants of corporate capital structure and dividend policy are examined simultaneously for the first time in Australia. Second, tests against multiple measures of leverage which are sensitive to the effects of different theories are reported. Finally, various measures of investment opportunities are presented in order to determine whether contradictory results of previous studies are due to spurious correlations.
Evidence of a positive association between leverage and both assets in place and firm size is presented. No support is found for an inverse relationship between leverage and profitability. Results of tests involving regulation are inconclusive. Evidence of a positive association between dividends and both firm size and growth options is presented. That profitability is found to be negatively related to dividends is justified by measurement problems. These results support variously the implications of agency, signalling and pecking order theory. Support for a taxation effect is also documented.
Dividends and leverage are found to be negatively correlated, implying some redundancy in the benefits each provides to the firm.