Asset structure of the firm: Theory and empirical evidence

The purpose of this dissertation is to expand upon the theory of asset structure originally proposed by Melnyk, et. al. (1984), and to test empirically selected hypotheses. A firm's success in a market economy and its survival under competitive pressures depend on its ability to satisfy the demand for its product or service. To do so, a firm commits to productive activities an aggregate amount of assets, composed of current assets and fixed assets, financed with capital supplied by investors who expect a rate of return on their investment commensurate with the assumed risk. Accordingly, the assets employed by the firm must produce that rate of return. Consistent with the capital structure theory, the rate of return earned by all suppliers of capital taken together must reflect their aggregate risk exposure to business risk inherent in the firm's operations, reflected in its assets. Therefore, the productive employment of a firm's assets constitutes the primary source from which investors' expectations of returns must be satisfied. Stated differently, the value of the firm is primarily a function of the underlying productivity of its assets. Any potential enhancement of its value due to the design of its capital structure is a second-order issue.