The Interactions between the Investment, Financing, and Dividend Decisions of Major U.S. Firms

This paper uses 114 responses to a June 1988 mail questionnaire survey of the financial managers of the 1,000 largest U.S. firms to examine Modigliani and Miller's “separation principle”. The opinions of practicing financial managers were found to be consistent with Modigliani and Miller as well as with the work of other empirical researchers. Almost without exception, the direction of causality between investment and financing decisions was found to run from the former to the latter, and dividend decisions were found to be driven by profits and prior year's dividends rather than by the firm's investment and financing actions. Clearly, the beliefs of practicing financial managers seem to reflect acceptance of Modigliani and Miller's “separation principle.”