https://www.sfu.ca/~wainwrig/Econ400/jensen-meckling.pdf

Theory of the firm: Managerial behavior, agency costs and ownership structure

计量经济分析 = Econometric analysis

Managerial discretion and optimal financing policies

This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith (1776)

Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure

https://teach.business.uq.edu.au/courses/FINM6900/files/module-2/readings/BreedenJFE.pdf

An intertemporal asset pricing model with stochastic consumption and investment opportunities

THE THEORY OF capital asset pricing under uncertainty has received considerable attention in the literature on finance following the initial formulations of Sharpe (1964), Lintner (1965), and Mossin (1966). However, the interpretation of the capital asset pricing model in terms of its implications for allocation of resources in the economy, has been the subject of much controversy. A particular case of the general question of resource allocation in the context of the capital asset pricing model is the problem of optimal investment and financing policies of the firm. In this context, the issues raised have been twofold: What is the effect of leverage on the market value of the firm? What should be the cutoff rate for investment decisions i.e., the cost of capital for a project? Modigliani and Miller [MM] (1958) and (1963) raised these issues in a partial equilibrium setting in both a no-tax world and a world with taxes, assuming perfect capital markets. The question naturally arises as to the linkage between the Modigliani-Miller analysis and the more recent theory of capital asset pricing. Lintner (1965), Hamada (1969), Mossin [(1969) and (1973)] examine the Modigliani-Miller propositions in the context of the capital asset pricing model and claim that the MM propositions hold only as an approximation. They argue that MM fail to consider changes in the aggregate level of investment in the economy as a result of a firm's decisions and the resulting changes in the relevant parameters of the capital asset pricing model.' If these analyses were valid, they would be fairly damaging to much of the

Intra-equilibrium and inter-equilibrium analysis in capital market theory: a clarification

Attention triggers and investors’ risk-taking

We analyze the impact of the introduction of credit default swaps (CDS) on real decision making within the firm. Our structural model predicts that CDS introduction increases debt capacity more when uncertainty about the credit events that trigger CDS payment is lower. Using a sample of more than 56,000 firms across 51 countries, we find that CDS increase leverage more in legal and market environments where uncertainty regarding CDS obligations is reduced and when property rights are weaker. Our results highlight the importance of legal uncertainty surrounding the interpretation of the underlying trigger events of global credit derivatives.

/pdf/credit-default-swaps-around-the-world-3j8ogdcp15.pdf

Credit Default Swaps around the World

This paper assumes that the underlying asset prices are lognormally distributed and drives necessary and sufficient conditions for the valuation of options using a Black-Scholes type methodology. It is shown that the price of a futures-style, market-to-market option is given by Black s formula if the pricing kernel is lognormally distributed. Assuming that this condition is fulfilled, it is then shown that the Black-Scholes formula prices a spot-settled contingent claim, if the interest-rate accumulation factor is lognormally distributed. Otherwise, the Black-Scholes formula holds if the product of the pricing kernel and the interest-rate accumulation factor is lognormally distributed.

The Pricing of Market-to-Market Contingent Claims in a No-Arbitrage Economy

This Policy Letter presents a proposal for designing a program of government assistance for firms hurt by the Coronavirus crisis in the European Union (EU). In our recent Policy Letter 81, we introduced a new, equity-type instrument, a cash-against-tax surcharge scheme, bundled across firms and countries in a European Pandemic Equity Fund (EPEF). The present Policy Letter 84 focuses on the principles and conditions relevant for the operationalization of a EPEF. Our proposal has several desirable features. It: a) offers better risk sharing opportunities, augmenting the resilience of businesses and EU economies; b) is need-based, thereby contributing to an effective use of resources; c) builds on conditions and credible controls, addressing adverse selection and moral hazard; d) is accessible to smaller and medium-sized firms, the backbone of Europe’s economy; e) applies Europewide uniform eligibility criteria, strengthening support among member states; f) is a scheme of limited duration, reducing (perceived) government interference in businesses; g) creates a template for a growth-oriented public policy, aligning public and private sector interests; and h) builds on the existing institutional infrastructure and requires minimal legislative adjustments.

https://www.econstor.eu/bitstream/10419/216212/1/1696138922.pdf

Marti G. Subrahmanyam

Papers

Intra-equilibrium and inter-equilibrium analysis in capital market theory: a clarification

Attention triggers and investors’ risk-taking

Credit Default Swaps around the World

The Pricing of Market-to-Market Contingent Claims in a No-Arbitrage Economy

Corona and Financial Stability 4.0: Implementing a European Pandemic Equity Fund