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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Uncertainty, Financial Frictions, and Investment Dynamics
TL;DR: In this paper, the authors analyzed the economic significance of the traditional "wait-and-see" effect of uncertainty shocks and pointed to financial distortions as the main mechanism through which fluctuations in uncertainty affect macroeconomic outcomes.
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Financial Systems and the Role of Banks in Monetary Policy Transmission in the Euro Area
Michael Ehrmann,Michael Ehrmann,Leonardo Gambacorta,Leonardo Gambacorta,Jorge Martínez-Pagés,Patrick Sevestre,Andreas Worms +6 more
TL;DR: In this article, a comprehensive comparison of the structure of banking and financial markets in the euro area is presented, based on which several hypotheses about the role of banks in monetary policy transmission are developed.
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Bank-Based or Market-Based Financial Systems: Which is Better?
Ross Levine,Ross Levine +1 more
TL;DR: This article presented the first broad, cross-country examination of which view of financial structure is more consistent with the data and found that although overall financial development is robustly linked with economic growth, there is no support for either the bank-based or market-based view.
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Determinants of capital structure: new evidence from Spanish panel data
Alberto de Miguel,Julio Pindado +1 more
TL;DR: In this paper, the authors analyzed the firm characteristics which are determinants of capital structure according to different explanatory theories, and how institutional characteristics affect capital structure, and found that the transaction costs borne by Spanish firms are inferior to those borne by US firms.
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Empirical tax research in accounting
TL;DR: In this article, the authors trace the development of archival, microeconomic-based, empirical income tax research in accounting over the last 15 years, focusing on coordination of tax and non-tax factors, effects of taxes on asset prices, and taxation of multijurisdictional (international and interstate) commerce.
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.
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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.