CORPORATE BANKRUPTCY AND CONGLOMERATE MERGER

CORPORATE BANKRUPTCY AND CONGLOMERATE MERGER MARCH 1975 CORPORATE BANKRUPTCY AND CONGLOMERATE MERGER ROBERT C. HIGGINS AND LAWRENCE D. SCHALL* SEVERAL IMPORTANT ATTEMPTS have appeared in recent literature to extend standard valuation theories to include corporate bankruptcy. Thus, under various assumptions regarding capital market imperfections and bankruptcy costs, Baxter [5], Smith [16], and Stiglitz [17, 18] argue that there is an optimal firm debt to equity ratio when bankruptcy is possible. Similar attempts to extend valuation theory are evident in the area of corporate diversification and conglomerate merger.' Alberts [1, 2] suggests that the ability of investors to diversify their own portfolios should imply that corporate diversification will produce no added benefits if bankruptcy risk is not present. More recently, Levy and Sarnat [6] show for the single period capital asset pricing model that, in the absence of corporate bankruptcy, conglomerate merger will have no effect on shareholder wealth. Schall [12, 13] shows for the multiperiod case that with bankruptcy risk and without corporate taxes the total value of the firms before conglomerate merger equals the value of the merged firm; the same result holds with corporate taxes if the debt owed by the merged firm equals the total debt owed by the firms http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

CORPORATE BANKRUPTCY AND CONGLOMERATE MERGER

Loading next page...
 
/lp/wiley/corporate-bankruptcy-and-conglomerate-merger-xPHFTVUvI5
Publisher
Wiley
Copyright
1975 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
D.O.I.
10.1111/j.1540-6261.1975.tb03162.x
Publisher site
See Article on Publisher Site

Abstract

MARCH 1975 CORPORATE BANKRUPTCY AND CONGLOMERATE MERGER ROBERT C. HIGGINS AND LAWRENCE D. SCHALL* SEVERAL IMPORTANT ATTEMPTS have appeared in recent literature to extend standard valuation theories to include corporate bankruptcy. Thus, under various assumptions regarding capital market imperfections and bankruptcy costs, Baxter [5], Smith [16], and Stiglitz [17, 18] argue that there is an optimal firm debt to equity ratio when bankruptcy is possible. Similar attempts to extend valuation theory are evident in the area of corporate diversification and conglomerate merger.' Alberts [1, 2] suggests that the ability of investors to diversify their own portfolios should imply that corporate diversification will produce no added benefits if bankruptcy risk is not present. More recently, Levy and Sarnat [6] show for the single period capital asset pricing model that, in the absence of corporate bankruptcy, conglomerate merger will have no effect on shareholder wealth. Schall [12, 13] shows for the multiperiod case that with bankruptcy risk and without corporate taxes the total value of the firms before conglomerate merger equals the value of the merged firm; the same result holds with corporate taxes if the debt owed by the merged firm equals the total debt owed by the firms

Journal

The Journal of FinanceWiley

Published: Mar 1, 1975

There are no references for this article.

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off