A number of studies demonstrated a positive relationship between market power and firm profitability. Economic theory demonstrates that these high profits imply higher prices and restricted output and consequently inefficient resurce allocation. Financial leverage, however, could be a possible alternative explanation for these profits. Market power may increase the ability of firms to support low cost debt capital and therefore the higher observed profitability could also be the result of greater financial leverage. This study then attempted to find empirical evidence to support the hypothesis that there is no significant difference between the financial structures of powerful firms and other less powerful firms. Leverage should increase risk because it represents a fixed obligation to the firm. The method of study employed is the application of analysis of variance and regression analysis to a cross-sectional sample of Canadian industry during the period 1962 to 1969. This study represents a first attempt to apply a finance model viz. CAPM to a problem in industrial organization, viz.concentration. The results indicate that powerful firms have relatively lower debt than other less powerful firms, thus rejecting the hypothesis. As a result of lower debt, powerful firms incur lower risk. The firm with market power apparently prefer low risk and a conservative capital structure. / Business, Sauder School of / Graduate

The purpose of this study is to survey the theory and practice of corporate liquid assets. A survey of the pertinent literature will be made to determine the theory concerned with the management of corporate liquid assets. The practice of the management of corporate liquid assets is examined at two levels. The first is a historical review of empirical data of Canadian corporations. The data used is aggregate in nature with corporations grouped into eleven industrial classes and ten asset size categories. With the aid of the computer various ratios are calculated. The transactions (sales) and wealth (asset) approach will be used. The second level of practice involves an examination of the policies and practices of liquid asset management in one specific manufacturing company, the Standard Oil Company of British Columbia Limited. The theory considers factors external and internal to the corporation that influence its need for and management of liquid assets. Four main external factors are: (1) the demand for money, (2) the development of the Canadian short-term money market, (3) the competitive environment, and (4) improvements in technology, education, and management skills. The theory suggests a number of internal factors are also influential in determining the need for and management of corporate liquid assets. They are: (1) corporate policy, (2) the ability of management to plan and control, (3) the individual firm's demand for money, (4) the size and nature of corporate organization and activity, (5) the age of a corporation, (6) the firm's cost of capital, and (7) the firm's growth rate. The survey of the practice of corporate liquid assets at the aggregate level suggests that firms of most industrial classes and asset size categories have during the 1951-64 period: (1) increased the use of the cash balances they hold, (2) freed liquid assets to be used in more attractive alternative means, and (3) shifted their portfolio of liquid assets so as to hold a greater proportion of interest earning forms, especially higher yielding nongovernment forms. The review of the policies and practices of liquid asset management at the Standard Oil Company of British Columbia Limited indicates the effective application of much of the theory. However, various characteristics specific to the company clearly indicate that all the theory and the general practices based on aggregate empirical data are not likely to be observed in the management of one company's liquid assets. / Business, Sauder School of / Graduate

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