The Review of Economics and Statistics Vol. 54 No. 2 1972
The Profitability of Retained Earnings
Abstract
A recent paper by Baumol, Heim, Malkiel and Quandt (1970) (hereafter referred to as BHMQ), estimated the relative rates of return on retained earnings, debt, and equity financing in United States corporations. The present paper summarises some results of my recent study (chapter 5, 1971) which investigates the effect of external financing on the future profitability of British quoted companies. The results of this study, which differs both in methodology and data used, are then compared with the BHMQ results. The comparison yields two important insights into the interpretation of the BHMQ results, whilst confirming the general conclusion that retained earnings seem to be used less profitably than external finance.
- DOI
- 10.2307/1926275
- Volume
- 54
- Issue
- 2
- Pages
- 152
- Sources
- openalex crossref