DEBT AND TAXES *

DEBT AND TAXES * T he somewhat heterodox views about debt and taxes that will be presented here have evolved over the last few years in the course of countless discussions with several of my present and former colleagues in the Finance group at Chicago—Fischer Black, Robert Hamada, Roger Ibbotson, Myron Scholes and especially Eugene Fama. Charles Upton and Joseph Williams have also been particularly helpful to me recently in clarifying the main issues. 1 My long‐time friend and collaborator, Franco Modigliani, is absolved from any blame for the views to follow not because I think he would reject them, but because he has been absorbed in preparing his Presidential Address to the American Economic Association at this same Convention. This coincidence neatly symbolizes the contribution we tried to make in our first joint paper of nearly twenty years ago; namely to bring to bear on problems of corporate finance some of the standard tools of economics, especially the analysis of competitive market equilibrium. Prior to that time, the academic discussion in finance was focused primarily on the empirical issue of what the market really capitalized. 2 Did the market capitalize a firm's dividends or its earnings or some weighted combination of http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

DEBT AND TAXES *

The Journal of Finance, Volume 32 (2) – May 1, 1977

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Publisher
Wiley
Copyright
1977 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1977.tb03267.x
Publisher site
See Article on Publisher Site

Abstract

T he somewhat heterodox views about debt and taxes that will be presented here have evolved over the last few years in the course of countless discussions with several of my present and former colleagues in the Finance group at Chicago—Fischer Black, Robert Hamada, Roger Ibbotson, Myron Scholes and especially Eugene Fama. Charles Upton and Joseph Williams have also been particularly helpful to me recently in clarifying the main issues. 1 My long‐time friend and collaborator, Franco Modigliani, is absolved from any blame for the views to follow not because I think he would reject them, but because he has been absorbed in preparing his Presidential Address to the American Economic Association at this same Convention. This coincidence neatly symbolizes the contribution we tried to make in our first joint paper of nearly twenty years ago; namely to bring to bear on problems of corporate finance some of the standard tools of economics, especially the analysis of competitive market equilibrium. Prior to that time, the academic discussion in finance was focused primarily on the empirical issue of what the market really capitalized. 2 Did the market capitalize a firm's dividends or its earnings or some weighted combination of

Journal

The Journal of FinanceWiley

Published: May 1, 1977

References

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