Financing Decision Relevancy : An Empirical Evidence of Balancing Theory

The relevancy of financing decision in order to predict value of the firm has been extensively debated within the literature of finance. This paper examines relationship between the two, based on balancing theory. This study controls the effect of investment opportunity set, accounting return, and liquidity on value of the firm. Research finding shows that there is non-linear relationship between the two, as balancing theory expected. Investment opportunity and accounting return statistically significant influence value of the firm. This paper also finds that there is non-linear relationship between liquidity and value of the firm