What Drives Firms’ Financial Decisions? Evidence from the Field

We survey 107 CFOs about the factors that Korean companies consider important in making financial decisions. Our findings indicate that capital structure decisions are closely related to company valuation. In addition, financial executives consider several factors, such as cashflow stability, potential profitability of investment, threats to managerial stability and bankruptcy cost, when they determine dividend and share repurchase decisions. According to the survey, Korean executives feel less negative about reducing the dividend than those in the United States, and do not view dividends and repurchases as substitutes for one another. We find that the pecking order theory, signal effect of the capital structure, and market timing are also applied to management decisions in the field.