Exploring the Dynamics of Financial Markets and Corporate Financial Decisions

Abstract

Background: The financial markets and corporate financial decisions are closely intertwined and have an important influence on economic results. The way in which market, in terms of stock prices, interest rates, and volatility affect corporate decisions, and vice versa, is a significant research topic. These aspects have been studied independently in previous studies, yet the mutual relationship has not been investigated to the full extent. The purpose of the research is the following: the investigation of the dynamic relationship between a financial market and corporate financial decisions and how the variables of the market translate into corporate strategies and vice versa.

Method: It was a mixed-method study involving both quantitative and qualitative analysis of the secondary data (financial markets stocks prices, interest rates, market volatility), and qualitative data (interviews with corporate managers). The data were analyzed using regression analysis, correlation tests and thematic analysis.

Findings: The findings indicate that the financial market conditions, including the changes in stock prices and interest rates, play a major role in the decision-making process of corporate investment, capital structure, and risk management. Conversely, these are corporate decisions which include capital expenditure and dividend policy of the company and are felt in the behavior of the market.

Conclusion: The paper shows how the financial markets and corporate financial decisions are mutually dependent on each other. It points to the necessity of a complex solution to realize how they influence each other, which can be helpful to managers in corporations and investors.