Open AccessJournal Article
The Cost of Capital, Corporation Finance and the Theory of Investment
TLDR
In this article, the effect of financial structure on market valuations has been investigated and a theory of investment of the firm under conditions of uncertainty has been developed for the cost-of-capital problem.Abstract:
The potential advantages of the market-value approach have long been appreciated; yet analytical results have been meager. What appears to be keeping this line of development from achieving its promise is largely the lack of an adequate theory of the effect of financial structure on market valuations, and of how these effects can be inferred from objective market data. It is with the development of such a theory and of its implications for the cost-of-capital problem that we shall be concerned in this paper. Our procedure will be to develop in Section I the basic theory itself and to give some brief account of its empirical relevance. In Section II we show how the theory can be used to answer the cost-of-capital questions and how it permits us to develop a theory of investment of the firm under conditions of uncertainty. Throughout these sections the approach is essentially a partial-equilibrium one focusing on the firm and "industry". Accordingly, the "prices" of certain income streams will be treated as constant and given from outside the model, just as in the standard Marshallian analysis of the firm and industry the prices of all inputs and of all other products are taken as given. We have chosen to focus at this level rather than on the economy as a whole because it is at firm and the industry that the interests of the various specialists concerned with the cost-of-capital problem come most closely together. Although the emphasis has thus been placed on partial-equilibrium analysis, the results obtained also provide the essential building block for a general equilibrium model which shows how those prices which are here taken as given, are themselves determined. For reasons of space, however, and because the material is of interest in its own right, the presentation of the general equilibrium model which rounds out the analysis must be deferred to a subsequent paper.read more
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Empirical Evidence on Dividends as a Signal of Firm Value
TL;DR: The role of dividends in firm valuation continues to be a theoretical puzzle as well as an empirical obsession with economists as discussed by the authors, since it is essentially an ad hoc observation that dividends may convey information to the capital market concerning a firm's future earnings potential.
Book
The Collected Papers of Franco Modigliani
Abstract: Articles and essays by the late Nobel Prize-winning economist on the life-cycle hypothesis, unemployment and monetary policy in the European Union, and other topics. This volume of papers, articles, and essays by the late Nobel Prize-winning economist Franco Modigliani contains writings published during the last decade of his life as well as three seminal earlier papers on the life-cycle hypothesis. As in the previous Collected Papers, the writings are organized by topic; within each topic, the order is chronological. Part I treats the life-cycle hypothesis. Beginning with his important essay from 1954 (written with Richard Brumberg), which laid down the foundation of the life-cycle model, and ending with the last paper Modigliani completed before his death in September 2003, this section presents his research on this topic as a coherent whole. Part II deals with unemployment and monetary policy in the European Union during the last decade of the twentieth century and includes a manifesto on EU unemployment written with six other economists. Part III contains essays on a variety of topics, among them inflation, financial risk, legal institutions, and unemployment. This section includes "The Keynesian Gospel According to Modigliani," which revisits the topic of the general theory of employment, interest, and money and its implications for mass unemployment sixty years after his first ground-breaking paper on the topic. Many of the articles in volume 6 are the product of collaboration; coauthors include Richard Brumberg, Albert Ando, Shi Larry Cao, Jean Paul Fitoussi, Tullio Jappelli, Beniamino Moro, Denis Snower, Robert Solow, Alfred Steinherr, Paolo Sylos Labinia, and Modigliani's granddaughter Leah Modigliani. The volume concludes with an interview of Modigliani by William A. Barnett and Robert Solow from 2000.
Journal ArticleDOI
The Financial Structure of Private Held Belgian Firms
TL;DR: In this article, the authors examined the determinants of the debt-equity choice and the debt maturity choice for a sample of small, privately held firms in a creditor oriented environment.
Journal ArticleDOI
FDI and credit constraints: firm level evidence from China
Jérôme Héricourt,Sandra Poncet +1 more
TL;DR: In this article, the authors assess the success of the ongoing financial system reforms in China by investigating the extent to which firms are financially constrained, and analyze whether incoming foreign investment in China plays an important role in alleviating domestic firms' credit constraints.
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Macro-prudential policy and the conduct of monetary policy
TL;DR: In this paper, the authors analyse the interactions between monetary and macro-prudential policies and the circumstances under which such interactions call for their coordinated implementation and assess the extent to which the new institutional arrangements adopted in Europe or proposed in the United States and the United Kingdom (UK) would effectively facilitate coordination and information-sharing between the central bank and the macro-policy authority.
References
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General Theory of Employment, Interest and Money
TL;DR: In this article, a general theory of the rate of interest was proposed, and the subjective and objective factors of the propensity to consume and the multiplier were considered, as well as the psychological and business incentives to invest.
Distribution of incomes of corporations among dividends, retained earnings and taxes
TL;DR: Lintner as discussed by the authors discusses the distribution of income of corporations among dividends, retained earnings, and taxes in the context of the Sixtyeighth Annual Meeting of the American Economic Association.
Journal ArticleDOI
Capital Equipment Analysis: The Required Rate of Profit
Myron J. Gordon,Eli Shapiro +1 more
TL;DR: The interest in capital equipment analysis that has been evident in the business literature of the past five years is the product of numerous social, economic, and business developments of the postwar period.
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The theory of investment value
TL;DR: The theory of investment value is a popular topic in finance fandom powered by wikia as discussed by the authors, where many investing theories have been proposed, e.g., investment multiplier theory, investment multiplier with diagram, the theory of the investment multiplier, investment value maximization theory, and investment value minimization theory.