Disadvantages Of Aggressive Financing

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2.2 Aggressive Financing:
Aggressive Financing is defined as an investment of company’s or corporate’s assets to gain the highest rate of return on the investment. Unlike safer and conservative financing policies, this strategy accepts the fact that maximizing returns would involve a increased level of risk. This strategy implies that the firm will finance part of its permanent assets and all of its current assets using short-term funds. Prior research shows that financial aggressiveness of CFOs leads them to have greater investment-to-cash flow sensitivity(Malmendier & Tate, 2005), larger amount of capital expenditures(Itzak, Graham, & Harvey, 2007), excessive merger activity(Roll, 1986)(Billett & Qian, 2008), larger acquisition premia(Hayward
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It is found in the literature that often CFO’s make use of contracting not only because it is more efficient and less expensive but also as the CFO is willing to accept the risk. (Gervais, Heaton, & Odean, 2011)has deduced analytically that when CFO’s aggressiveness benefits shareholders, it also benefits the CFOs. An important qualification to the above findings is while some aggressiveness benefits both CFO and shareholders, too much aggressiveness can be value-destroying for the firm[(Goel & Thakor, 2008),(Gervais, Heaton, & Odean,…show more content…
A research by(Howorth & Westhead, 2003) and (Afza & Nazir, 2007)suggests that firms often keep an optimal level of working capital which helps in the maximization of firm value. Moreover, a research by (Gardner, Mills, & Pope, 1986), (Weinraub & Visscher, 1998) confirms that aggressive working capital policies are associated with higher return and higher risk for the firm. We use the above mentioned studies and take working capital as a aggressive financing measure and thereby we find out the relation between facial width to height ratio and aggressive working capital management policies of the financial managers or

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