effects of profitability and liquidity on r d intensity japanese and u s companies compared this study investigates the proposition that japanese companies have a greater propensity than u s companies to sustain commitment to r d in the face of fluctuating profits and liquidity the anal

expected inflation and the real rates of interest on taxable and tax exempt bonds this paper analyzes the impact of inflation on rates of return on taxable corporate bonds and tax exempt municipal bonds the paper considers a differential tax system where the tax rate depen ds on both the identity of the investor and the source of income it also consid ers the possibility that inflation may induce investors to switch from holding one asset to holding another it is demonstrated that while inflation should increase the pre personal tax real rate of interest on taxable bonds it should reduce the real rate of interest on tax exempt bonds copyright 1987 by ohio state university press

macroeconomic impacts of oil price shocks in asian economies abstract this paper analyzes the macroeconomic impact of structural oil shocks in four of the top oil consuming asian economies using a var model we identify three different structural oil shocks via sign restrictions an oil supply shock an oil demand shock driven by global economic activity and an oil specific demand shock the main results suggest that economic activity and prices respond very differently to oil price shocks depending on their types in particular an oil supply shock has a limited impact while a demand shock driven by global economic activity has a significant positive effect in all four asian countries examined our finding also includes that policy tools such as interest rates and exchange rates help mitigating the effects of supply shocks in japan and korea however they can be more actively used in response to demands shocks

the impact of inflation on the aggregate debt asset ratio this paper demonstrates that contrary to the results of previous studies the impact of inflation on the aggregate debt asset ratio cannot be determined theoretically however it is shown that inflation is likely to increase this ratio when personal income tax schedules are indexed to the price level and or when leverage related costs are relatively high and the personal tax rate on income from holding common stocks is relatively low studies concerning the effect of inflation on firms capital structure conclude that inflation enhances debt financing jaffe 9 modigliani and cohn 16 and modigliani 15 argue that nominal interest payments consist in part of true interest payments and in part of a compensation for the reduction in the real value of the principal the fact that firms are allowed to deduct their entire interest expense including the portion that is a return of principal reduces their cost of debt capital gordon 6 concludes that the equilibrium debt capital ratio rises when the inflation rate rises he argues that an increase in the nominal interest rate induced by inflation increases the tax advantage of debt financing thus debt financing becomes more attractive and a rise in leverage related costs is necessary to restore equilibrium gordon asserts that the increase in leveragerelated costs is brought about by an increase in the debt equity ratio all these studies however focus primarily on the tax benefits of debt financing to the corporation and implicitly assume that each firm has a unique optimal structure which may change with inflation in contrast miller 14 in a world without inflation concludes that firms are indifferent to their capital structure and that the aggregate debt equity ratio is determined by the ratio of the wealth of investors who for tax reasons choose to hold bonds to the wealth of those who choose to hold stocks this paper explicitly incorporates tax considerations of both investors and firms into the analysis of the effect of inflation on the aggregate corporate debtasset ratio it is demonstrated that the effect of inflation on the aggregate debtasset ratio cannot be determined theoretically however inflation is likely to increase this ratio when personal income tax schedules are indexed to the price level and or when leverage related costs are relatively high and the tax on income from holding common stocks is relatively low we consider an economy in which investors are subject to a progressive tax system income from corporate bonds

bankruptcy risk and optimal capital structure this study finds shortcomings in empirical tests of the capital structure irrelevance hypothesis the alternative hypothesis is that firms choose value maximizing mixes of debt and equity on account of bankruptcy costs and the tax deductibility of interest payments based upon the cross sectional implications of the tax shelter bankruptcy cost hypothesis an alternative test of the irrelevance hypothesis is performed the test examines the relationship between failure rates and leverage ratios for 36 lines of business the results are inconsistent with the irrelevance hypothesis in their landmark paper modigliani and miller 26 demonstrate that under certain assumptions the market value of a firm is independent of its capital structure these assumptions include the absence of taxes transactions costs and bankruptcy costs recently miller 24 has argued that the introduction of corporate and personal taxes does not alter the capital structure irrelevance result in the absence of bankruptcy costs 1 the inclusion of bankruptcy costs generally considered in conjunction with the tax deductibility of interest payments has led others to conclude that capital structure will affect the value of the firm 2 in this case value maximizing firms may choose optimal capital structures consisting of both debt and equity there have been numerous attempts to discriminate empirically between the miller irrelevance mi hypothesis and the tax shelter bankruptcy cost ts bc hypothesis several are discussed in section i of this paper there it is argued that studies attempting to measure directly the effect of changes in capital structure on firm values are subject to serious complications and are unable to discriminate between the mi and ts bc hypotheses other studies focus on cross sectional implications of the mi and ts bc hypotheses the cross sectional tests are based on the assertion that bankruptcy costs may tend to induce firms with greater business risk to include less debt in their capital structures whereas the mi hypothesis does not predict such a relationship unfortunately the existence of positive bankruptcy costs is not sufficient to ensure that the ts bc hypothesis will predict the inverse relation

volatility spillovers between oil prices and stock sector returns implications for portfolio management abstract in this article we take a recent generalized var garch approach to examine the extent of volatility transmission between oil and stock markets in europe and the united states at the sector level the empirical model is advantageous in that it typically allows simultaneous shock transmission in the conditional returns and volatilities insofar as volatility transmission across oil and stock sector markets is a crucial element for portfolio designs and risk management we also analyze the optimal weights and hedge ratios for oil stock portfolio holdings with respect to the results our findings point to the existence of significant volatility spillover between oil and sector stock returns however the spillover is usually unidirectional from oil markets to stock markets in europe but bidirectional in the united states our back testing procedures finally suggest that taking the cross market volatility spillovers estimated from the var garch models often leads to diversification benefits and hedging effectiveness better than those of commonly used multivariate volatility models such as the ccc garch of bollerslev 1990 the diagonal bekk garch of engle and kroner 1995 and the dcc garch of engle 2002

estimating the cost of leisure time for recreation demand models abstract in this paper we propose a method of determining the opportunity cost of leisure time with an empirical recreation demand application typically the opportunity cost of leisure time is assumed to be some fraction of the wage rate this practice has limitations first it assumes that individuals can trade time for money at their wage second it offers no guidance about how to value the time of an individual who is not in the labor force this paper proposes a method of determining this cost that does not suffer from these drawbacks an empirical example is provided which demonstrates the proposed approach and contrasts it with commonly applied approaches

testing benefits transfer of forest recreation values over a twenty year time horizon we conduct a functional benefit transfer over 20 years of total willingness to pay based on carborne forest recreation in 52 forests using a mixed logit specification of a random utility model and geographic information systems to allow heterogeneous preferences across the population and for heterogeneity over space results show that preferences for some forest attributes such as species diversity and age as well as transport mode have changed significantly over the period updating the transfer model with present total demand for recreation improves the error margins by an average of 282 average errors of the best transfer model remain 25

monetary policy and the informational efficiency of the stock market the evidence from many countries 1987 monetary policy and the informational efficiency of the stock market the evidence from many countries applied economics vol 19 no 11 pp 1521 1532

examining the theory of capital structure signal factor hypothesis the aim of this study was to explore how various levels of information asymmetry affect the capital structure of listed companies in taiwan and china regression results over the past few decades have indicated that the trade off theory lacks explanatory power bringing into question the accuracy of the static trade off theory and the existence of an optimal capital structure on the other hand the financial decisions of companies do not always appear consistent with the pecking order theory building on the research of chou et al 2011 this study sought to verify the signal factor hypothesis which combines the trade off theory with the pecking order theory this study was the first one to employ the panel kpss test with sharp drifts developed by chang and ranjbar 2012 as well as the fourier function to verify that an optimal capital structure does exist for companies with more symmetric information thereby establishing the trade off theory firms with information asymmetry show adverse selection

hedging financing and investment decisions theory and empirical tests abstract in this paper we theoretically and empirically examine the interaction between hedging financing and investment decisions a simple equilibrium model with costly financial distress suggests that as firms become more efficient at risky investments vis a vis low risk investments they will borrow less invest more in risky assets and hedge more the model also predicts a positive relationship between hedging and leverage a result consistent with debt capacity arguments we test the model empirically using a simultaneous equations framework to investigate the determinants of firm level hedging financing and investing decisions the results strongly support the hypothesis that the hedging financing and investment decisions are jointly determined in addition we find strong support for the central hypothesis that firms more efficient investing in risky technologies more aggressively hedge and use less debt financing in order to maximize their comparative advantage

some aspects of japanese corporate finance in this paper we attempt to blend economic theory with an understanding of the historical context and regulation of japanese financial markets particularly during the 1950s and 1960s the historical and regulatory context is critical since it represents the framework within which the economic forces operated that is we are interested in examining how a particular structure characterized by controlled interest rates segmentation of markets and functions and limited entry gave rise in understandable ways to distinctive corporate financial practices there have been a number of recent publications that attempt to describe and explain the japanese corporate financial system 1 perhaps the most discussed topics are the relatively high degree of financial leverage for the typical japa nese firm and the predominance of bank financing for the external funding of large corporations there also has been discussion of such apparent peculiarities in the equity markets as the issue of shares at a par value of 50 yen when their market value is 1 000 yen or more as well as the extensive cross holdings of shares between corporations the role of a firm s main bank as not only len der and financial advisor but in some cases exercising management control also has received attention before we address these issues we wish to make two points first the structure of the japanese financial system changed radically after world war ii as a consequence of legislation introduced by the occupation authorities and the need to rebuild for example with respect to high debt to equity ratios and heavy dependence on bank loans nakamura 26 cites evidence that equity comprised 67 percent of gross capital total assets for manufacturing industries in 1935 in a related vein kurosawa 22 provides figures that external funding by japanese corporations during the 1931 1936 period was only 4 percent from bank loans with 96 percent through stocks and industrial bonds

welfare losses due to livestock grazing on public lands a count data systemwide treatment backcountry hikers willingness to pay for removing grazing from trails in the hoover wilderness is analyzed using a multinomial dirichlet negative binomial distribution this multivariate discrete distribution allows the direct calculation of seasonal welfare measures that are derived from an incomplete demand specification the welfare maximizing choice of activities is examined on a trail by trail basis using the results of the analysis our findings suggest that a mix of hiking and grazing activities provide the greatest social welfare

empirical evidence on the insulation properties of fixed and flexible exchange rates abstract this paper investigates whether japanese output stability since the mid 1970s is attributable to the change in exchange rate regime or to the changing nature of underlying disturbances we decompose foreign and domestic influences on output movements using restrictions on the long run dynamics to identify the disturbances we find that the flexible exchange rate regime is more effective in insulating the economy from foreign disturbances than is the fixed rate regime however in the case of japan it is primarily the changing nature of the fundamental disturbances to the economy that is responsible for greater output stability since the mid 1970s

the japanese equity market past and present this paper discusses matters of economic interest related to the japanese equity market among other things it emphasizes the futures market in shares of the companies that managed the stock exchanges as an important element of the pre wwii market the stock market crisis of 1965 as an event that conditioned the subsequent course of public policy and institutional developments the zaraba continuous auction method as the microstructure of the exchanges and the uneven distribution of stock ownership and trading the poor performance of investment trusts and the high degree of concentration in the securities industry as the key contemporary features

bibliography of franco modigliani s publications 1944 1985 ed in the c f a digest the institute of chartered financial analysts vol 11 no 4 fall 1981 pp 15 16 166 financial markets the decades ahead an m i t perspective proceed ings of a symposium for senior executives the industrial liaison program of the massachusetts institute of technology june 1980 167 utility analysis and aggregate consumption functions an attempt at integration with richard brumberg the collected papers of franco modigliani the life cycle hypothesis of saving vol 2 ed a abel m i t press cambridge ma 1980 pp 128 97 168 the trade off between real wages and employment in an open economy belgium with jacques h dreze c o r e universite catholique de louvain discussion paper no 7947 1980 reprinted in european economic review 15 1981 pp 1 40 169 the stucture of financial markets and the monetary mechanism with lucas papademos controlling monetary aggregates iii conference series number 23 federal reserve bank of boston 1980 170 a new look at the monetary mechanism the 1980 w a mackintosh lecture queen s university discussion paper no 447 kingston ontario canada 1981 171 uma nova abordagem do mecanismo monetario e sue relacao com a estrutura financeira the monetary mechanism revisited and its relation with the financial structure revista de econometria sociedade brasileira de econometria 1 1 april 1981 pp 5 30 172 comment on scale of macro econometric models and accuracy of fore casting by g fromm and l r klein in j kmenta and j b ramsey eds large scale macro econometric models north holland 1981 pp 393 4 173 comment on where have all the flowers gone economic growth in the 1960s by robert m solow in j a pechman and n j simler eds economics in the public service papers in honor of walter w heller ww norton co inc 1981 pp 75 83 scand j of economics 1986 this content downloaded from 157 55 39 141 on mon 18 jul 2016 05 30 52 utc all use subject to http about jstor org terms

estimation and welfare analysis with large demand systems we develop an approach for estimating individual or household level preferences for a large set of quality differentiated goods and for constructing hicksian welfare measures within the demand system framework our approach uses a maximum simulated likelihood procedure to recover estimates of the structural parameters and a multistage monte carlo markov chain algorithm for constructing hicksian consumer surplus estimates we illustrate our approach with a recreation dataset consisting of day trips to 62 mid atlantic beaches

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

crude oil and the macroeconomy tests of some popular notions a note perhaps no other economic events in the post world war ii era have generated as much attention as the series of crude oil price shocks that have jolted the world economy since the opec boycott of 1973 a tremendous amount of space in the popular and professional literature has been devoted to analyzing the impacts of these shocks on the developed economies and the adjustments these shocks have induced one residual of this literature has been a general impression that since 1973 the functional relationship between crude oil prices and the developed macroeconomies has been dramatically and fundamentally altered yet to our knowledge no one has formally tested this impression recent evidence of hamilton 1983 suggests that crude oil prices had a strong impact on the u s business cycle well before 1973 further while textbook treatments of oil price shocks tend to highlight cost push inflationary effects the research of berndt and wood 1975 1979 and wilcox 1983 indicates the net complementarity between energy and capital in the u s economy is quite strong both before and after 1973 thus oil price shocks may have stronger real effects than generally believed in this paper we formally test three popular notions associated with the so called

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

evidence of financial leverage clienteles estimates of the marginal ordinary tax rates of investors obtained from responses to a survey about their incomes were found to be only slightly negatively correlated with the debt ratios of the firms whose stock they held klm s failure to observe a strong negative correlation raises doubts concerning the existence of financial leverage clienteles the purpose of our study is to provide new evidence concerning financial leverage clienteles based on a different estimator of tax rates of shareholders the evidence indicates that personal tax rates tend to be highly negatively correlated with financial leverage providing support for the existence of financial leverage clienteles in the following section we discuss the miller and klm models of financial leverage clienteles section ii contains a description of the procedures used for estimating personal tax rates and a description of the data used to test the hypothesis of leverage clienteles results and implications of the tests are presented in section iii and section iv contains the summary

benefit incidence of public recreation areas have the winners taken almost all this study presents a framework for investigating the benefit incidence of provision of public recreation opportunities the proportion of individuals who use outdoor recreation services increases with income and frequency of use differs by the users gender and life situation e g depending on whether they are students or older citizens the decomposition of distributive incidence shows that a bias in favor of high income groups may be accentuated when the perceived value of these services is taken into account in monetary terms we compare alternative strategies in terms of equity for improving recreation opportunities e g reduced distance to or increased acreage of recreation sites our results indicate that although these strategies improve the welfare distribution among the income groups a considerable proportion of benefits nevertheless accrue to high income groups

the effect of capital structure on a firm s liquidation decision abstract a firm s liquidation can impose costs on its customers workers and suppliers an agency relationship between these individuals and the firm exists in that the liquidation decision controlled by the firm as the agent affects other individuals the customers workers and suppliers as principals the analysis in this paper suggests that capital structure can control the incentive conflict problem of this relationship by serving as a pre positioning or bonding mechanism appropriate selection of capital structure assures that incentives are aligned so that the firm implements the ex ante value maximizing liquidation policy

structural change and the macroeconomic effects of oil shocks empirical evidence from the united states and japan abstract this paper investigates whether the usa and japan have become better insulated from oil price disturbances due to more favorable structural conditions new production technologies allowing greater energy substitution the development of energy commodity markets reduced energy intensity of production more market oriented energy policies and so on we decompose the influences of oil shocks on real gnp growth and inflation movements in the context of a simultaneous equation model where identification is partly achieved by restricting the long run dynamics we find that oil shocks accounted for a greatly reduced fraction of real gnp growth and inflation variance in both countries primarily because of superior insulation characteristics rather than reduced importance of oil disturbances our estimates suggest that a similar percentage oil price hike would have exerted about one quarter the contractionary effect on real gnp and upward push in inflation in the 1980s compared with the previous two decades jel e31 e32 f30

on the existence of an optimal capital structure theory and evidence one of the most contentious issues in the theory of finance during the past quarter century has been the theory of capital structure the geneses of this controversy were the seminal contributions by modigliani and miller 18 19 the general academic view by the mid 1970s although not a consensus was that the optimal capital structure involves balancing the tax advantage of debt against the present value of bankruptcy costs no sooner did this general view become prevalent in the profession than miller 16 presented a new challenge by showing that under certain conditions the tax advantage of debt financing at the firm level is exactly offset by the tax disadvantage of debt at the personal level since then there has developed a burgeoning theoretical literature attempting to reconcile miller s model with the balancing theory of optimal capital structure e g deangelo and masulis 5 kim 12 and modigliani 17 the general result of this work is that if there are significant leverage related costs such as bankruptcy costs agency costs of debt and loss of non debt tax shields and if the income from equity is untaxed then the marginal bondholder s tax rate will be less than the corporate rate and there will be a positive net tax advantage to corporate debt financing the firm s optimal capital structure will involve the trade off between the tax advantage of debt and various leverage related costs the upshot of these extensions of miller s model is the recognition that the existence of an optimal capital structure is essentially an empirical issue as to whether or not the various leverage related costs are economically significant enough to influence the costs of corporate borrowing the miller model and its theoretical extensions have inspired several timeseries studies which provide evidence on the existence of leverage related costs trczinka 28 reports that from examining differences in average yields between taxable corporate bonds and tax exempt municipal bonds one cannot reject the miller hypothesis that the marginal bondholder s tax rate is not different from the corporate tax rate however trczinka is careful to point out that this finding does not necessarily imply that there is no tax advantage of corporate debt if the personal tax rate on equity is positive indeed buser and hess 1 using a longer time series of data and more sophisticated econometric techniques estimate that the average effective personal tax rate on equity is statistically positive and is not of a trivial magnitude more importantly they document evidence that is consistent with the existence of significant leverage related costs in the economy

the linkage between oil price shocks and economic growth with inflation in the presence of technological advances a cge model abstract this study examines whether oil price shocks are inflationary in the us we increase the price of oil in the year 2000 in a manner consistent with the oil price shock of 1973 74 and let the economy experience a hicksian technological change then using a dynamic computable general equilibrium cge model we conduct our analyses under two separate cases 1 regular economic growth and 2 low economic growth we also run three technological scenarios 1 no technology change 2 technological advances in the manufacturing and refining sectors and 3 technological advances in the manufacturing refining chemical and service sectors the effects of these changes are analyzed over the next 20 years until the year 2020 our results suggest that while a shock of the magnitude experienced in the 1970s will have a fairly severe effect on such things as gasoline and refinery prices the aggregate price changes will be largely dissipated over time at the aggregate level furthermore the aggregate level of prices cpi and ppi will fall over time as the level of technological advances rise under both growth scenarios there are several reasons why we would obtain such results first of all the structure of the us economy has changed remarkably since the early 1970s rather than being a manufacturing based economy the us is largely a service based economy today and hence it is more protected form raw materials shortages second the economy has had a steady history of strong growth and the faster an economy grows the quicker disruptions to that economy are dissipated finally our economy is experiencing rapid technological advances in information systems which have served to reduce costs and maintain output in a wide number of economic sectors

a comparison of welfare estimates from four models for linking seasonal recreational trips to multinomial logit models of site choice we compare four methods of linking a site choice random utility model to a seasonal trip model the four approaches are those proposed by morey et al 1993 am j agric econom 75 578 592 hausman et al 1995 j public econom 56 1 30 parsons and kealy 1995 j environ econom management29 357 367 and feather et al 1995 j environ econom management29 214 227 we estimate the alternative models using a common data set and calculate a change in welfare for two policy scenarios across the models we find that there is little practical difference between the approaches of morey et al and hausman et al they are nearly the same mathematically and the welfare estimates in our empirical example are quite close the approaches of parsons and kealy and feather et al generated welfare estimates that were substantially different from the previous two approaches as well as from each other they also generated results that reveal the inconsistencies between their site choice and season trip models

asymmetries in the response of economic activity to oil price increases and decreases abstract it has been common to assume that the relationship between economic activity and oil prices is asymmetric theoretical underpinnings for this asymmetry include costly sectoral reallocation partial equilibrium models of irreversible investment and some version of precautionary savings yet recent studies that use new methodologies to test for asymmetries in u s data have cast some doubts on that premise in this paper we use state of the art techniques to evaluate the presence of asymmetries for a set of oecd countries containing both oil exporters and oil importers we find very little support for the hypothesis that the response of industrial production to oil price increases and decreases is asymmetric our results have important implications for theoretical models of the transmission of oil price shocks they point towards the importance of direct supply and direct demand transmission channels as well as indirect transmission channels that imply a symmetric response

a reexamination of the empirical relationship between investment and financing decisions several studies see 7 15 9 and 16 have attempted to ascertain the empirical relationships that exist between the financing and investment decisions of firms the primary impetus for these efforts was provided by modigliani and miller mm 20 21 when they demonstrated that under the assumption of perfect capital markets the optimal investment decisions of a firm are separable from its financing decisions in the presence of market imperfections interdependencies between these decisions that violate the basic mm propositions may exist therefore the studies referred to above have essentially focused upon determining whether market imperfections have been of sufficient magnitude to lead to joint determination of investment and financing decisions though the original mm propositions were introduced more than two decades ago the nature of the empirical relationship between investment and financing decisions remains a controversial issue the fact that this matter is still unresolved is not attributable to a lack of attention for the original propositions have been examined in the presence of taxes bankruptcy costs and agency costs with no clear consensus emerging

deregulation disintermediation and agency costs of debt evidence from japan abstract many japanese firms reduced dependence on banks following financial deregulation in the 1980s the financial architecture of japanese firms after liberalization provides an opportunity to investigate the choice of financing with public bonds versus monitored bank loans examination of accounting and stock price data for a sample of japanese firms in the late 1980s suggests that debt structure is related to variables that serve as proxies for agency costs of debt in particular we find that the proportion of bond debt is inversely related to growth opportunities while the proportion of bank debt is positively related to growth opportunities

ownership and firm innovation in a transition economy evidence from china we examine innovation performance of firms in a transition economy from an ownership perspective we focus specifically on the relationship between ownership structures and firm innovation performance drawing on data from 548 chinese firms we find volume of patent registration to be most strongly influenced by foreign ownership in the firm along with firm affiliation within a business group the influence of state and institutional ownership on innovation performance is positive but lagged contrary to expectations insider ownership leads to lower innovation performance and concentrated ownership has no significant impact our study has two principal contributions firstly we utilize a comprehensive treatment of ownership characteristics overcoming weakness in previous studies that have used a more narrow focus on ownership type secondly we contribute to understanding of how firms in transition economies build indigenous capabilities for innovation by drawing attention to the interplay of foreign and domestic control of agents innovation

calibrating benefit function transfer to assess the conservation reserve program benefit transfer offers an inexpensive alternative to conducting an original study to determine economic value unfortunately benefit transfers can also result in biased welfare estimates in this paper we suggest a method of calibrating the benefit transfer to reduce this bias an empirical example to determine the benefits of the conservation reserve program on water based recreation illustrates the potentially large biases that can result if the transfer is not calibrated

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

limiting environmental program contradictions a demand systems application to fishery management economically efficient natural resource policy requires the comprehensive management of environmental improvements over a system of sites use of multisite demand and benefit models can reduce the number and cost of environmental program contradictions in this paper we present a multisite demand model that incorporates several quality dimensions for a system of new mexico fishing sites use of the model permits managers to improve total welfare at lower cost by simultaneously distributing opportunity across all elements in resource users choice sets model results show that errors that result from independently adding values of interdependent program elements approach 50

taxes capital structure choices and equity value we use a multitude of tax reforms across the organisation for economic co operation and development oecd countries as natural experiments to estimate the market value of the tax benefits of debt financing we report time series evidence that tax reforms are followed by large changes in the value of corporate equity however the impact of tax reforms is greatly mitigated by the presence of leverage the value of debt tax savings is greater among top taxpayers among highly profitable firms and in countries where tax laws are more strongly enforced importantly the value of debt tax savings is in line with the benchmark implied by a traditional approach

optimal inflation with corporate taxation and financial constraints abstract how does inflation affect the investment decisions of financially constrained firms in the presence of corporate taxation inflation interacts with corporate taxation via the deductibility of i capital expenditures and ii interest payments on debt through the first channel inflation increases firms taxable profits and further distorts their investment decisions through the second expected inflation affects the effective real interest rate and stimulates investment when debt is collateralized the second effect dominates therefore present a tax advantage to debt financing positive long run inflation enhances welfare by mitigating or even eliminating the investment distortion

estimation and welfare calculations in a generalized corner solution model with an application to recreation demand the kuhn tucker model of wales and woodland 1983 provides a utility theoretic framework for estimating preferences over commodities for which individuals choose not to consume one or more of the goods due to the complexity of the model however there have been few applications in the literature and little attention has been paid to the problems of welfare analysis within the kuhn tucker framework this paper provides an application of the model to the problem of recreation demand in addition we develop and apply a methodology for estimating compensating variation relying on monte carlo integration to derive expected welfare changes

banks firms and the relative pricing of tax exempt and taxable bonds abstract the traditional analysis of the relative pricing of tax exempt and taxable debt is a habitat theory of the term structure of interest rates in the traditional analysis the preferences of investors for particular maturities of debt lead to unique pricing relations at every point on the yield curve which are indicative of investor marginal tax brackets recent work by fama 1977 suggests that banks are potential arbitrageurs across tax exempt and taxable bond markets which force a particular equilibrium on the pricing of short term bonds miller 1977 suggests that the choice of debt or equity financing by firms in the aggregate forces a similar equilibrium on the pricing of all tax exempt and taxable bonds this paper exploits the institution of regulation q and its effects on the banking system to bring evidence to bear on the predictions of these three models

understanding the financing of innovation and commercialization the case of the canadian functional food and nutraceutical sector we develop and implement two models to show what factors affect a firm s decision to seek external financing and the level of financing obtained in the canadian functional food and nutraceutical sector data from a national survey of functional foods and nutraceutical firms in canada conducted by statistics canada in 2003 is used for this analysis firm size being privately held and engaging in contractual arrangements have negative impacts on the likelihood of a firm seeking external funding while firms which are intensively involved in the functional food and nutraceutical sector with greater prospects for business expansion and or involved in partnerships are more likely to seek external financing larger firms and those involved in functional food and nutraceutical research and development receive a greater amount of capital when they decide to raise capital however firms focused on functional foods and nutraceuticals as opposed to more diversified firms and those involved in product developm

the levered p e ratio a vast literature examines the role of debt in corporate valuation but most of these works proceed from the vantage point of corporate finance i e ascertaining the effects of adding debt to a previously unlevered company the investment analyst however confronts an already levered company with already levered return parameters the analyst s challenge is to estimate the stock s theoretical value by inferring the company s underlying structure of returns this shift in vantage point leads to results about the effect of leverage that are surprisingly different from the results of studies from the corporate finance angle whereas corporate finance studies find only a moderate effect of leverage when viewed from the analyst s perspective a company s value has such a high degree of sensitivity to the leverage ratio that it can significantly alter the theoretical p e valuation moreover from the analyst s vantage point leverage always moves the p e toward a lower value than that obtained from the sta

miller s equilibrium shareholder leverage clienteles and optimal capital structure the purpose of this paper is twofold first we examine the individual portfolio decisions when income from stocks and bonds is taxed at different rates second a rationale for the existence of risky debt in the presence of leverage related costs and differential personal income taxation is provided previous studies on capital structure with differential personal income taxation have ignored either the portfolio risk consideration and or the possibility of losing personal and corporate interest tax shields due to insufficient taxable earnings e g 8 2 3 14 13 6 7 1 9 19 20 21 23 in section i of this paper both the portfolio risk consideration and the possibility of losing personal and corporate interest tax shields are explicitly introduced this enables us to provide a rationale for the shareholder leverage clientele phenomenon within a mean variance framework we also demonstrate a non corner solution for the optimal corporate capital structure in a tax environment similar to that of miller s debt and taxes 14 in sections ii and iii of this paper miller s world is further modified to include risky debt and the attendant costs we re examine and synthesize recent studies on the theory of optimal capital structure which have appeared since the publication of debt and taxes e g 4 6 7 13 19 20

the bank capital decision a time series cross section analysis this paper seeks to explain the dramatic decline in capital to asset ratios in u s commercial banks during the last two decades it is hypothesized that the rise in nominal interest rates during this period might have contributed substantially to the fall in capital ratios time series cross section estimation supports the hypothesis regarding the interest rate bank capital is the sum of equity plus debt subordinated to deposits capital provides a cushion that protects the bank from insolvency when the value of its assets falls a bank can meet its obligations to depositors as long as losses on its asset portfolio do not exceed its capital the ratio of capital to total assets in u s commercial banks has fallen dramatically in the last two decades dropping from 11 7 percent in 1961 to 5 7 percent in 1978 the lowest level since world war ijj1 figure 1 shows the decline in the ratio of capital to noncash assets these figures suggest that the federal deposit insurance corporation fdic and uninsured depositors are being exposed to increased probabilities of losses from bank insolvencies however relatively little empirical research has been devoted to the determinants of the bank capital decision further the existing work see for example peltzman 24 mingo 20 or mayne 17 18 uses only cross sectional data and therefore does not necessarily explain the decline in capital to asset ratios over time previous empirical research has also focused on book values rather than market values of debt and equity although market values provide better estimates of the protection afforded by capital this practice might be partly justified by the attention paid to book values by bank regulators however the increasing use of qualitative factors as well as book ratios in capital regulation indicates that regulators are aware of the deficiencies in book values many of the so called qualitative considerations are precisely the factors that distinguish market from book value 6 pp 78 80 finally difficulties arise over the proper measure of capital the empirical studies cited above treat equity and debt capital symmetrically both equity and assistant professor of finance economics boston university school of management this paper was originally written as part of a doctoral dissertation at m i t helpful suggestions from robert mcdonald richard schmalensee larry summers and edward j kane are gratefully acknowledged l these statistics are based on the market values of capital and assets the methods used to construct the market value series are described in the appendix capital asset ratios based on book values also have fallen over the period in question although not as severely

debt taxes and international equilibrium abstract this paper employs an extended miller model to analyze capital structure decisions of individual firms in a two country setting miller equilibria are generally not consistent with an international equilibrium if the tax subsidy of debt differs across countries the most obvious reason for differential tax subsidies is differences between national corporate tax rates we also identify differential tax subsidies of debt if inflation rates differ across countries for both cases we examine the adjustment process from national equilibria to an international equilibrium without and with barriers to international investment we derive the relationship between the equilibrium yields on debt and equity in the two countries and discuss the fisher hypothesis that real returns do not depend upon inflation in a two country miller world

valuing food store access policy implications for the food stamp program food stamp recipients may lack access to larger stores reducing the availability of nutritious food reliance on smaller stores may have undesirable impacts policy alternatives include limiting food stamp redemption to larger stores and subsidizing store development i estimate that limiting redemption to supermarkets and grocery stores or supermarkets alone results in losses ranging from 499 2 million to 1 05 billion or 1 17 billion to 2 44 billion respectively annual loss in food stamp recipient welfare nationwide the impact of improving access is also significant ranging from 333 6 million to 931 2 million

the value of the tax subsidy on risky debt the effect of corporate taxes on the market value of a levered firm continues to be a central issue in recent contributions in finance theory e g miller 1977 deangelo and masulis 1980 kim 1982 modigliani 1982 in these and other studies e g krause and litzenberger 1973 scott 1976 brennan and schwartz 1978 kim 1978 the relationship between market value and capital structure is established by formulating a tax subsidy function that specifies the partial effect of debt on the expected tax savings at the corporate level under the existing u s tax code a working assumption in most of these studies is that both principal and interest are tax deductible this assumption is made in the spirit of the original modigliani and miller 1963 formulation in which debt is taken to be perpetual and riskless indeed it is well known that the tax shield provided by the deduction of principal in a singleperiod framework has the same value as the tax shield from interest deductions in the case of perpetual and riskless debt under this assumption it is shown that in the absence of non debtthis paper examines the relationship between leverage and the value of the firm when non debt related tax shields are available and the corporate tax is levied as an income tax in a previous paper de angelo and masulis argue that in the presence of nondebt related tax shields the relationship between debt and firm value is concave resulting in an interior optimal capital structure when there is a tax induced differential in the cost of corporate debt their result derives from the fact that they assume the payment of debt principal and non debt related depreciation charges are deductible however the former deduction is consistent with a wealth tax while the latter is consistent only with an income tax we show that if the interest alone is deductible the debt firm value function is convex resulting in corner solutions to the capital structure problem the authors wish to thank richard castanias richard green lemma senbet and especially an anonymous referee for helpful comments and richard green and robert dammon for computational assistance

optimal capital structure and investment with real options and endogenous debt costs we examine the joint optimization of financial leverage and irreversible capacity investment in a real options framework with risky debt and endogenous interest costs higher capacity ceteris paribus increases operating leverage and default probability but lowers ex post adjustment costs and generates larger tax shields a key insight is that financial leverage and capacity are substitutes in the debt market equilibrium we develop novel predictions about the effects of capital adjustment costs operating costs and uncertainty on optimal financial leverage and capacity that may potentially help explain ambiguous empirical results in the literature regarding the determinants of capital structure and investment received march 17 2016 editorial decision july 8 2017 by editor itay goldstein

a clash of capitalisms foreign shareholders and corporate restructuring in 1990s japan this article examines the clash between stakeholder and shareholder based business systems resulting from an increase in foreign portfolio investment in the japanese economy during the 1990s an analysis of 1 108 firms between 1991 and 2000 shows that as foreign institutional investors who were more interested in investment returns than in long term relationships replaced domestic shareholders one fundamental pillar of japan s stakeholder capitalism began to crack japanese firms began to adopt downsizing and asset divestiture practices more characteristic of anglo american shareholder economies the influence of foreigners however was weaker in firms more deeply embedded in the local system through close ties to domestic financial institutions and corporate groups thus foreign investors were influential primarily in firms less embedded in the existing stakeholder system this research contributes to debates on globalization and convergence of business systems institutional change and corporate

taxation portfolio choice and debt equity ratios a general equilibrium model this paper explores the portfolio behavior of investors differing with respect to both tax rates and risk aversion emphasizing the role of constraints on individual and firm behavior in ensuring the existence of and characterizing portfolio equilibrium under certain conditions on the securities available in the market which also are necessary for shareholders to be unanimous in supporting firm value maximization investors will be segmented by tax rate into two groups one specialized in equity and the other in debt though the relative wealths of the two groups determine the aggregate debt equity ratio each firm will be indifferent to its financial policy

corporation tax finance and the cost of capital this paper examines the influence of corporate tax exhaustion on the firm s financial and investment decisions a dynamic programming model is used to establish effective marginal tax rates in the presence of a tax system that permits the carry forward of losses to future periods the paper demonstrates that internal optimal financial structures may result which do not require the imposition of external constraints the cost of capital is highly sensitive to the current taxable earnings of the firm and the implications of this for such tax transfer activities as leasing are discussed

modelling companies debt and dividend decisions with company accounts data reliable empirical models of company financial decisions have proved hard to construct using aggregate data this paper uses company specific data drawn from the published accounts of a large sample of uk companies to estimate a model of debt and dividend decisions an attempt is made to assess the relative importance of costs of funds the tax system the balance sheet and profitability of the company and of statutory controls in determining these key financial decisions diversity of behaviour is analysed by allowing for unobserved company specific effects and by examining subsets of the full sample

the critical implicit tax rate and capital structure in a miller world firms are indifferent between debt and equity when the tax rate that isimplicitly used to price a bond is equal to the statutory corporate tax rate in this paper we derive the implicit tax rate that makes a firm marginally indifferent between debt and equity when debt related tax savings are uncertain we analyze the functional relationship between this critical tax rate and the amount of debt issued by a firm and discuss the implications for a firm s optimal capital structure

a discrete count model of recreational demand abstract discrete choice models generate welfare measures resulting from environmental quality changes on a per trip basis instead of over a longer more policy relevant time period seasonal or annual welfare measures resulting from a quality change are often computed by multiplying each individual s per trip welfare measure by the number of trips the individual is forecasted to take at the new quality level these models are typically formulated so that increases in the quality of any site causes every individual to increase his or her participation this paper presents an alternative method of linking the discrete choice model to a demand model enabling welfare changes to be estimated in a conventional manner

on the aggregate value of recreational activities a nested price index approach using poisson demand systems an important consideration in the development ofregulations and policies that administer naturalresources in an area is the value of the non marketactivities supported by those lands little attentionhas been paid to the aggregate value of largegeographic areas this analysis builds autility theoretic price index and utilizes this indexto estimate an aggregate poisson demand to valuebackcountry recreational hiking opportunities innorthern california

taxation corporate financial policy and the cost of capital the cost of capital plays an important role in the allocation of resources among competing uses in a decentralized market system the purpose of this paper is to organize and present what is known and what is hypothesized about the effects of taxation on the incentive to invest via the cost of capital taking full account of important issues that arise independently from the question of taxation included in the analysis is a discussion of empirical findings about the interaction of inflation and taxation in influencing the incentive to invest and a treatment of taxation and uncertainty this abstract was borrowed from another version of this item

the capital structure puzzle revisited corporate finance researchers have long been puzzled by low corporate debt ratios given debt s corporate tax advantage this article recognizes that firm value typically reflects a growing stream of earnings while current debt reflects a nongrowing stream of interest payments debt to value is therefore a distorted measure of corporate tax shielding even with very small debt related costs this may explain the observed magnitude and cross sectional variation of debt ratios since this variation may be independent of tax shielding debt ratios provide an inappropriate framework for empirically examining the trade off theory of capital structure article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the determinants of corporate capital structure japanese evidence this paper features a cross sectional regression analysis of the determinants of the company debt to value ratios of a sample of 125 japanese industrial and commercial companies for the period 1980 1983 inclusive the regression equations include a set of dummy variables designed to capture industry effects and a number of other variables acting as proxies for likely determinants of debt ratios suggested in the empirical literature such as profitability non debt tax shields risk etc the results are consistent with the existence of industry effects and suggest that paralleling recent american findings profitability is the most significant determinant of japanese company debt ratios

mm past present future one of the most productive days in my life was the day in 1956 when it was agreed that merton miller then a shy and retiring young man would you believe it would sit in my graduate course in money and macroeconomics at carnegie institute of technology it was an exciting course with excellent students it took a broad view of the subject one issue that was covered was the cost of capital as a determinant of the rate of investment i had been intrigued by the subject ever since attending a national bureau conference on business finance at which i gave a fairly conventional paper modigliani and ziman 1952 but mostly i listened to a paper by david durand 1952 in which the possibility that financial structure would not affect the market valuation or the cost of capital was suggested only to be rejected as not relevant to the actual capital markets in preparing my lecture dealing with the cost of capital i was able to provide for a world of no taxes a sort of proof of proposition i based on arbitrage i reported the result to my class the next day adding that i didn t really believe my result and there probably was something wrong but miller was instantly captured by the result because he said he knew of a recent paper allen 1954 which provided empirical support for the result even though it lacked a convincing rationale we thus formed

energy capital substitution wage flexibility and aggregate output supply abstract this paper analyzes the relationship between factor substitution labor market conditions and aggregate output supply in order to study the transmission mechanism of energy price change to the rest of the economy it shows that the energy capital complementarity vs substitutability issue may turn out to be crucial in shaping the direction of the adjustment of aggregate output supply following energy price changes how crucial it is it is shown to depend on the beliefs of firms regarding the stock of capital on the degree to which labor markets clear and on the wage elasticity of labor supply some empirical evidence is presented about the relationship between energy price changes and output supply

stockholder tax rates and firm attributes abstract this paper develops a rigorous theoretical model to assess when investor clienteles may be empirically identified using ex dividend day data and what firm attributes these clienteles should respond to it then presents empirical results for the period 1963 1977 suggesting that 1 tax based investor clienteles do exist and are reasonably stable over time and 2 these clienteles are strongly influenced by the dividend price ratio but insignificantly by direct measures of risk and other firm characteristics

brand choice and purchase frequency revisited an application to recreation behavior the role that total purchases play in determining the choice among brands has been considered in microeconomic theory for quite some time but for traditional goods only consumption of outdoor recreation is an unusual good most often measured using an individual s recreational trip adding the trips made on a number of choice occasions seems the obvious way to aggregate this good but doing so leads to several problems in defining a meaningful price index the hicks leontief conditions for aggregation suggest that trips to destinations may be thought of as brand choices on consumption occasions andthe continuous analogue to total purchases may in fact be the individual s total travel an empirical example of the model is used to estimate welfare impacts for a group of anglers

inflation the interest rate and the required return on equity miller has analyzed capital structure in the presence of both corporate and personal taxes the present work investigates the effect of inflation on both interest rates and equity re turns when the miller equilibrium condition is employed in a loanable funds model both an interest rate effect and a redistribution effect are derived the interest rate effect forces the responsiveness of the interest rate to the inflation rate to be below that hypothesized by darby however the redistribution effect may change this responsiveness in either direc tion i introduction the number of academic studies concerning inflation has grown in tandem with the price level researchers have considered the effect of the rate of infla tion on the interest rate the simplest models show that without taxes a 1 per cent rise in the rate of anticipated inflation increases nominal interest rates by 1 percent recently the effect of taxation on the relationship between interest rates and inflation has been investigated for example darby 5 has pointed out that a 1 percent increase in the inflation rate should increase the after tax interest rate by 1 percent imply ing a greater movement in pre tax interest rate this result has been confirmed and extended by gandolfi 13 feldstein 8 and others however empirical evidence has not supported the theoretical work mentioned above beginning with irving fisher many researchers have found that a 1 percent increase in the inflation rate yields less than a 1 percent increase in the pre tax interest rate the results of feldstein eckstein 9 and fama 7 suggest a one to one relationship to our knowledge there is no convincing evidence of a greater than one to one relationship in addition to the lack of empirical validation there is at least one conceptual shortcoming in past studies of inflation and interest rates most theories of corporate capital structure are not suitable to macroeconomic models for university of pennsylvania philadelphia pa 19104 this paper has benefited from the com ments of m flannery g gerber r papetti a santomero and an anonymous jfqa referee

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model