When unemployment is low, consumer spending tends to be high because most people have income to spend, which is good for businesses and helps drive growth. Entrepreneurship tends to focus on identifying and fulfilling consumer needs in specific niche markets, but all businesses can be affected by large-scale economic trends. Management attitudes that most directly influence the choice of financing and dividend policy are those concerning control of the enterprise and risk. Taxation also plays an important part in deciding the form of dividend. 209. In sum, financial decisions are looked upon as cutting across functional, even disciplinary boundaries. Accordingly, common stock must be issued. 2. In such a situation, finance manager should not be very much liberal in dividend distribution. Regulatory of loan contract. Structure of Capital and Money Markets. Within the economic and legal environment of the country finance manager must take financial decision, keeping in mind the numerous characteristics of the firm. Because of difficult access to external sources of financing, smaller organisations have to depend on internal sources of financing and for that matter the management may pursue conservative dividend policy to retain larger proportion of business earnings. 9. Thus, there is every likelihood of relatively greater amount of dilution of debt in the capitalisation of older firms. Dividend policy must be geared to investors in general and existing stockholders and potential stockholders in particular. For instance, decision to acquire a capital asset is based on expected net return from its use and on the associated risk. However, on a closer scrutiny it would appear that the present value of tax savings in initial years would always be higher than the present value of the additional tax liability in the subsequent years. The management is, therefore, constrained to declare dividend at higher rate. For instance, financial corporations in India usually insist on maintenance of debt-equity ratio for medium and large scale project as 1.5:1 and promoter’s contribution of 20-25 percent of the project cost while considering loan application of a firm. What Causes Business Expansion & Contraction in the Business Cycle? Prudent dividend policy in such concerns is one that lays more emphasis on greater retention of earnings so that the firm could build huge reserves in periods of prosperity and the same could be utilised to maintain dividend rate at times when earnings of the firm nose-dive. In financial management managers decisions in the light of three corporate decisions, Investment decision, financing decisions and asset management decisions. Plagiarism Prevention 4. To minimise cost of financing finance manger should insist more on debenture financing as benefits on trading on equity would tend to minimise cost. They approach underwriters and stock brokers and pay them higher commission and brokerage for sale of their securities. In manufacturing and public utility concerns bulk of the funds have to be employed in acquiring fixed assets while in trading concerns substantially large amount of funds is invested in current assets, and fixed assets claim a nominal proportion. A person has many needs such as the social needs, basic needs, security needs, esteem needs and self-actualization needs. Structure of assets: Structure of assets is another element to receive finance from the financial institutions. During boom periods, jobs tend to be plentiful, since companies need workers to keep up with demand. Legal structure of business: Legal entity of the business is another phenomenon to deliver finance decision. Thus, the greater the dispersion of outcomes, higher the discount rate is employed which means that returns will be reduced at a higher rate because of the allowance made for the risk assigned to the eventuality of their realisation. Probabilities of Regular and Steady Earnings: While planning about the make-up of capitalisation and deciding about the relationship between debt and equity the finance manager must visualize the trends of earnings of the firm for the past few years. Internal Factors: 4. plurality of the country. Possibility of earning consisting profit. There may be different types of investors with varying degree of safety, liquidity and profitability notions. This helps in maximisation of the market value of the firm. When a person is motivated enough, it influences the buying behaviour of the person. 1. For that matter, he should after evaluating the economic viability of project in hand; select the most profitable project in advance so that when the opportunity crops up the same is seized upon. Thus taxation influences the choice of method of depreciation. Internal factor dynamics consist the all significant elements to boost up the total organization financing policy. External factor: But at the operating level of carrying out the policies, sales may also be involved since decisions to tighten up or relax collection procedures may have repercussion on sales. Dividend distributed in shares is popularly known as bonus shares. Economic Factors Affecting Businesses. But sole proprietorship firm cannot do same. Economic factors that commonly affect businesses include consumer confidence, employment, interest rates and inflation. Structure of assets. In such circumstances too the management must not be liberal in dividend distribution at least for some years even though a sizeable profit has been earned. Major factors influencing investment decision are expected return on the project, its cost and the risk associated with the project. They also draw upon a part of the reserves built out of the past earnings for covering their additional financial needs. Dividend policy of a firm should also be attuned to changing economic conditions. 1 ISSN: 2330-1236. Contents: Decision Making; Factors that Influence Decision Making; A. But trading concerns and those dealing in luxurious products would be committing blunder in pursuing such dividend policy. So firm should keep both long term and assets for enjoy financing from the possible sources.

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