Investigate whether Financial Conservative Policies Depend on Dissertation

Investigate whether Financial Conservative Policies Depend on Financial Distress - Dissertation Example New York, USA: McGraw-Hill. 23 Gravetter, F. J. & Wallnau, L. B. (2009) Statistics for the Behavioral Sciences. USA: Cengage. 23 Healey, J. F. (2009) The Essentials of Statistics: A Tool for Social Research. USA: Cengage. 23 A. Appendix 25 Abstract Financial conservatism is one of the most important reflectors of the financial state of a company. Ordinarily, such an attitude is adopted by companies which are either in financial distress or operate in a rather risky environment. Financial conservatism could be decomposed into cash conservatism and leverage conservatism each of which are again decided after taking into consideration a number of parameters. There typically is a debate about the degree of accuracy with which a financially distressed company is found to adopt financially conservative policies. The present paper takes up this subject and attempts to empirically analyze the same on the basis of around 950 USA firms, with data collected between 1998 and 2006. A panel data lo git regression model had been set up firstly to assess cash conservatism, then leverage conservatism and finally financial conservatism. ... These policies typically, reflect an environment where the companies are endowed with large cash balances and low leverage. While high cash balance indicates the presence of huge fund reserves to the company while, low leveraged financial structure implies that the concerned firm prefers turning towards equity financing over debt financing when they need funds for investment. However, maintaining such a stance might not necessarily mean that the concerned company is operating in a financially distressful environment. When firms find it difficult to meet their financial obligations to their creditors or fail to meet the same, they are considered as traversing through a phase of financial distress. But, financial conservatism might not imply that the firm in question is in a distressful phase of time; it might even mean that the entity is trying to shield itself against too much openness, which could land it up in a mess. However, one important factor which could be cited at this point is that financially conservative policies are highly transitory in nature. The present paper is targeted towards an examination of the extent to which financial conservatism is a suitable reflector of whether the company in question is literally amidst financially distressful phase or not. 1.1 Research Aims and Objectives The present paper attempts to assess whether firms which maintain a financially conservative policy are actually victims of financial distress or not. There is a high possibility of detecting a company’s financial situation through examining its financial policies. Empirically it had been found that in situations where a particular company is found to align to financially conservative policies over a considerable period of time, it generates some useful