This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
A frequent cause of technical insolvency among industrial combinations has been excessive anxiety on the part of directors to pay dividends. It has previously been pointed out that many industrial combinations are started on the basis of excessive anticipation of profit, which has been aroused by glowing prospectuses, and the organizers feel called upon to "make good." Dewing says that in every one of the cases of failure cited by him, with the exception of the American Glue Company and the possible exception of the American Bicycle Company, financial difficulties were not in consequence of overcapitalization, as is usually alleged, but the "direct cause of failure in every instance was deflection of working capital to the paying of interest and dividends. Beneath these, as the fundamental cause, was the lack of judgment of promoters in placing bonds upon an untried industrial enterprise, and the lack of conservatism of the early management in paying dividends without due regard to sound principles of finance".