FINANCE Corporate financial policy and R and D Management

last year’s dividends, supporting the positions of Lintner (1956), Fama and
Babiak (1968), and Switzer (1984).
The rejection of the perfect markets hypothesis is found in (1) the in-
fluence of dividends and effective debt financing on the investment deci-
sion; (2) evidence that increasing capital expenditures lowers dividends,
whereas R&D is positively associated with increasing dividends; and (3)
the interdependence between investment and effective debt variables. The
empirical evidence concerning U.S. firms in the WRDS universe confirms
the necessity of using simultaneous equations to econometrically model the
interdependencies of financial decisions. The evidence is more supportive
of the existence of imperfect markets in the larger universe than in the orig-
inal Guerard, Bean, and Andrews (1987) and Guerard and McCabe (1992)
303-firm sample.

180 INTERDEPENDENCIES AMONG CORPORATE FINANCIAL POLICIES