The assessment of the applicability of financial structural theorems

Abstract

This study deals with one of the central corporate finance questions; it is about to what extent the prevailing financial structural theories have provided appropriate solutions to enable practicing professionals to identify, evaluate and monitor company’s financial structures. The undertaken field survey study has adopted the analytical descriptive methodology using the descriptive and inferential statistical techniques. It has been conducted through a comprehensive questionnaire, which consists of twelve sections each one deals with one particular aspect of the research problem and includes a number of alternative options for respondents to evaluate using Likert five points scale. The study main findings include the existence of a gap between the current financial structural theories and the actual practices in the same field, thus implying the dissatisfaction of the public practitioners regarding the prevailing theorems. The study findings also supported the concept of the financial structure rather than the capital structure because the former identifies the employed capital in terms of its two key dimensions; the financial leverage and the net working capital liquidity. Also, it has evaluated the effectiveness of financial structure by assessing the value of its twin elements, which have been classified as high, medium or low. Moreover, the results of the field survey has recognized the trade-off process between the underlying factors of financial strength as the sole determinant of the effectiveness of the financial structure; and it has approved the proposed qualities of the required financial structural model for identifying, evaluating and monitoring company’s financial structure