Discuss the financing hierarchy view of corporate liquidity Essay

Discuss the financing power structure view of corporate moltenity - adjudicate ExampleConsidering this relationship predicted by the hierarchy view, it is different from the trade-off view which argues that the relationship between the take of cash and investment maintained by an entity is direct. The hierarchy view also holds that firms raise their levels of cash reserves when they are confident about their future profitability and the fact that refreshful opportunities will require inordinate cash reserves (Tirole 2006).The empirical evidence in relation to the corporate policies on liquidity, based on the check out conducted by Deutsche Bank (2006), suggests that a significantly high level of companies surveyed, i.e. 18 percent, maintained liquid cash reserves which were more than 20 percent of their assets, whereas 38 percent survey participants had established realization lines over and above 20 percent of their assets value. On the other hand, one interesting finding fro m the survey revealed that about 50 percent of the participants signified their indifference towards changing liquidity position, had there been no new opportunities in the market (Servaes and Tufano 2006). Thus, holding of cash cannot be deemed for availing new investment opportunities and this is where empirical evidence departs from hierarchy view of corporate liquidity