MARKET IMPERFECTIONS, CAPITAL MARKET EQUILIBRIUM AND CORPORATION FINANCE

MARKET IMPERFECTIONS, CAPITAL MARKET EQUILIBRIUM AND CORPORATION FINANCE MAY 1977 SESSION TOPIC: CORPORATE FINANCE AND THE CAPITAL ASSET PRICING MODEL SESSION CHAIRPERSON: MICHAEL BRENNAN* MARKET IMPERFECTIONS, CAPITAL MARKET EQUILIBRIUM AND CORPORATION FINANCE AND R. C. STAPLETON M. G. SUBRAHMANYAM** THISPAPER IS CONCERNED WITH TWO TYPES Of market Segmentation and their implications for corporate financial decisions. The first type is caused by restrictions on certain individuals investing in certain securities and is exemplified by segmentation in international capital markets. The second type is induced by the simultaneous existance of differential personal tax rates and a fixed element of transactions costs. Segmentation of the former type produces incentives for firms to merge and affects the cost of capital, while the latter type raises questions about the tax effect of dividend policy. The framework of the analysis is the single period capital asset pricing model (CAPM). The derivation of equilibrium security prices given these market imperfections and the comparative statics of the corporate policy changes is analytically intractable. For example, if fixed transactions costs exist investors face complicated maximization problems for which no neat analytical results are possible. However, numerical solutions for equilibrium can be obtained by modelling the tztonnement process towards equilibrium. A Walrasian auctioneer presents a set http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

MARKET IMPERFECTIONS, CAPITAL MARKET EQUILIBRIUM AND CORPORATION FINANCE

Loading next page...
 
/lp/wiley/market-imperfections-capital-market-equilibrium-and-corporation-RLFfXKuUZO
Publisher
Wiley
Copyright
1977 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1977.tb03271.x
Publisher site
See Article on Publisher Site

Abstract

MAY 1977 SESSION TOPIC: CORPORATE FINANCE AND THE CAPITAL ASSET PRICING MODEL SESSION CHAIRPERSON: MICHAEL BRENNAN* MARKET IMPERFECTIONS, CAPITAL MARKET EQUILIBRIUM AND CORPORATION FINANCE AND R. C. STAPLETON M. G. SUBRAHMANYAM** THISPAPER IS CONCERNED WITH TWO TYPES Of market Segmentation and their implications for corporate financial decisions. The first type is caused by restrictions on certain individuals investing in certain securities and is exemplified by segmentation in international capital markets. The second type is induced by the simultaneous existance of differential personal tax rates and a fixed element of transactions costs. Segmentation of the former type produces incentives for firms to merge and affects the cost of capital, while the latter type raises questions about the tax effect of dividend policy. The framework of the analysis is the single period capital asset pricing model (CAPM). The derivation of equilibrium security prices given these market imperfections and the comparative statics of the corporate policy changes is analytically intractable. For example, if fixed transactions costs exist investors face complicated maximization problems for which no neat analytical results are possible. However, numerical solutions for equilibrium can be obtained by modelling the tztonnement process towards equilibrium. A Walrasian auctioneer presents a set

Journal

The Journal of FinanceWiley

Published: May 1, 1977

References

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