for security was made operational by assuming that the debt-equity ratio is used as a measure of risk by the firm. The result was a model in which the desire to maintain or achieve equality betwen its actual and desired debt-equity ratios yielded a prediction of the firm's investment. The primary purpose of this paper is to present the results of empirical work undertaken to test the theory's ability to explain the annual investment of the firm. Broadly speaking, the theory says that a firm's investment will vary with (1) a function of its internal generated funds, and with (2) the excess of its desired level of debt over its actual debt. The empirical findings, based on a sample of 23 chemical corporations covering the years 1954-1960, support the theory. Part I first provides some background material which establishes the origins of the theory and the issues in the area, and then presents a brief statement of the model. Part II states the measurement rules employed to obtain the sample values of the variables. Part III reports and analyzes the findings.