subjective stochastic dominance put writing and stock purchases with extensions to option pricing and portfolio composition initially an investor has the choice of two risky assets writing a european put option or buying the underlying share under broad conditions a risk averse investor will be subjectively better off writing the put when homogeneous expectations are invoked an upper bound for the put premium is obtained a numerical example using the lognormal density function illustrates the broad conditions for risk averters subjectively preferring the put writing strategy additional conditions permit this preference for writing puts to be extended to the portfolio context transactions costs only reinforce this preference in the one period horizon considered

dividend taxes corporate investment and q abstract taxes on corporate distributions have traditionally been regarded as a double tax on corporate income this view implies that while the total effective tax rate on corporate source income affects real economic decisions the distribution of this tax burden between the shareholders and the corporation is irrelevant recent research has suggested an alternative to this traditional view one explanation of why firms in the united states pay dividends in spite of the heavy tax liabilities associated with this form of distribution is that the stock market capitalizes the tax payments associated with corporate distributions this capitalization leaves investors indifferent at the margin between a corporation s decision to pay out dividends or to retain earnings this alternative view holds that while changes in the dividend tax rate will affect shareholder wealth they will have no impact on corporate investment decisions this paper develops econometric tests which distinguish between these two views of dividend taxation by extending tobin s q theory of investment to incorporate taxes at both the corporate and personal levels the implications of each view for corporate investment decisions can be derived the competing views may be tested by comparing the performance of investment equations estimated under each theory s predictions british time series data are particularly appropriate for testing hypotheses about dividend taxes because of the substantial postwar variation in effective tax rates on corporate distributions the econometric results suggest that dividend taxes have important effects on investment decisions

corporate income tax competition double taxation treaties and foreign direct investment abstract in the presence of international capital mobility foreign direct investment is influenced by corporate income tax rates and the rules of how taxes paid in the host country are treated at home in this paper the exemption credit and deduction methods are considered as tax rules tax competition is modeled as a non cooperative game with respect to both corporate tax rates and the form of double taxation relief the subgame perfect equilibrium is shown to be independent of the tax rules since capital is inefficiently allocated the feasibility and the content of a cooperative contract between governments are analyzed it is argued that only the credit method requires neither compensatory payments nor fully harmonized tax rates this is consistent with the observation that tax credits are very often adopted in double taxation treaties

financial integration and business cycles in a small open economy abstract the purpose of this study is to examine a dynamic stochastic general equilibrium framework with financial and informational frictions and foreign borrowing in the case of money growth and technology shocks for a small open economy and to analyze the implications of varying degrees of financial integration for aggregate fluctuations and propagation mechanisms in the economy the existence of informational asymmetries among the agents in the model necessitates financial intermediation in the economy moreover there is uncertainty involved in the production process which leads to collateralized borrowing by firms and therefore has to be taken into account in the design of the loan contracts between firms and financial intermediaries it is shown that increasing financial integration amplifies the effect of a positive temporary monetary shock on output consumption investment labor demand and loans whereas it has barely any implication for the impact of a positive temporary technology shock on the economy

the incidence and allocation effects of a tax on corporate distributions abstract to study the effects of double taxation first at the corporation level then at the shareholder level this paper analyzes a model with a tax on all corporate distributions to equity owners and no other taxes contrary to the common view the tax is shown to have no subtitution effect and in particular no effect on the corporate choice between debt and equity via retained earnings finance the analysis opens to question certain arguments commonly used to support integration of corporation and individual income taxes via dividend relief

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

the effects of taxation on partnership investment abstract partnership are becoming more prevalent in the united states and may represent a significant source of investment in the future consequently understanding the effects of taxation on partnership investment may become increasingly important this paper examines how the level of taxation and the degree of progressivity of the tax system affect partnership investment our analysis also examines how such factors as partner outside income partner preferences for risk taking and the manner in which the partnership is organized can interact with the tax code to alter partnership investment levels

on the firm s production capital structure and demand for debt some economists have ignored corporate financing decisions on the assumption that they do not affect the investment and production decisions of firms yet even if this extreme position is accepted firms must still make financing decisions which in turn have impacts on other sectors of the economy since interest payments on corporate debt are tax deductible the reliance of firms on debt as opposed to equity financing directly affects the revenue the federal government collects through taxation of corporate profits the corporate presence in bond markets and corporate borrowing from banks can be expected to affect both interest rates and the demand for money thus any large macro model must somehow account for the borrowing behavior of firms yet in assessing this portion of the 1965 brookings quarterly econometric model of the united states de leeuw 1965 p 506 writes that the regressions for business borrowing are the least successful of the model in this paper we derive an equation for the long term debt ratio capital structure of a firm which can be estimated using available data unlike some recent qualitative studies on the aggregate corporate debt ratio as related to inflation and taxation over time our primary aim is to explain differences in the debt behavior among individual firms tobit estimation results explicitly allowing for the fact that some firms have no long term debt are presented for both u s and japanese firms our theoretical model implies that the long term debt ratio which maximizes the present value of the existing stockholder s equity depends positively on the cost of equity and negatively on the cost of debt capital productivity and retained earnings our estimation results are generally in agreement with these expectations in particular we find that capital productivity which has not been included as an explanatory variable in most previous studies 2 and the cost of equity capital are both important determinants of the firm s capital structure our empirical results also support the view put forward by komiya3 that debt ratios for japanese firms are higher than those for u s firms in part because the cost of equity has been historically higher in japan than in the united states in relation to the cost of debt other important attempts to explain the debt ratio as a behavioral function of the price of debt and other variables include the studies of de leeuw 1965 and goldfeld 1969 4 certain conceptual problems mar these studies however short term and long term debt are not distinguished despite the fact that long term debt is usually used to finance capital spending while short term debt is used to finance inventory and

the impact of taxation on the currency of denomination decision for long term foreign borrowing and lending this paper shows the distorting effects of different tax regulations on the effective absolute and relative costs of long term borrowing in different currencies in particular if expected borrowing costs are equal before tax then the process of minimizing expected after tax borrowing costs generally involves borrowing the weakest currency

institutional investment patterns and corporate financial behavior in the united states and japan abstract this paper examines the agency problem between shareholders and debtholders of japanese and u s firms whereas u s institutional investors are restricted from doing so japanese financial institutions take large equity positions in firms to which they lend particularly in firms more susceptible to the agency problem debt ratios of u s firms are negatively related to the firm s potential to engage in risky suboptimal investments whereas japanese debt ratios show no such relation the evidence is consistent with the notion that the agency problem is mitigated to a greater degree in japan than in the u s

taxes inflation and corporate financial policy this paper examines inflation induced distortions in personal and corporate income taxes and discusses the implications for corporate dividend and financial structure policies and for shareholder unanimity the tax effects relating to capital gains and debt interest cause changes in aggregate corporate borrowing and lead to equilibrium tax relationships which differ from the zero inflation tax relationships some of the important consequences of inflation arise from inflation induced changes in the real tax rates on business and personal income the real tax rate on business income can increase because the historical cost rather than the replacement cost of inventories and of plant and equipment are used in computing taxable income e g see nelson 15 and hong 8 inflation can increase real personal taxes through the taxation of shareholder capital gains that are nominal but not real see feldstein 6 hamada 7 points out that corporate capital structures may be affected by inflation because part of nominal debt interest payments are tax deductible even though they are actually repayments of principal this paper analyzes certain inflation induced tax distortions and discusses the consequences for corporate policy the major findings include 1 real taxes associated with capital gains and losses are greater the higher the inflation rate unless inflation causes offsetting changes in statutory tax rates pretax rates of return on assets or asset holding periods 2 real capital gains tax rates can exceed real dividend tax rates but even in this case shareholders generally lose if the firm reduces capital gains by paying larger dividends financed by new share sales 3 a shareholder s ranking of alternative firm policies can change as a result of a purely neutral inflation in which case a policy which does not maximize share price will be preferred under some inflation rates 4 the lender s real tax rate on debt interest income and the borrower s real tax shelter per dollar of real interest expense depend on the inflation rate and on the nominal interest rate even if statutory tax rates are fixed 5 if the dividend tax rate differs from the capital gains tax rate for some or all investors the miller 13 equilibrium tax relationship does not generally hold with inflation and the effect of inflation on aggregate debt and equity in the economy depends on personal and corporate tax rates section i examines the impact of inflation on the taxation of capital gains and losses and of dividends and discusses the implications for dividend policy and for shareholder preferences concerning firm policies section ii examines the

some observations on capital structure and the impact of recent recapitalizations on share prices this paper discusses two fundamental issues in capital structure theory and analyzes the recent recapitalizations of phillips and unocal it is shown that a value maximizing capital structure may be inconsistent with shareholder utility maximization and that the miller debt and taxes equilibrium may be inconsistent with a complete capital market in spite of these and other unresolved issues the markets s reactions to the recent recapitalizations of phillips and unocal are consistent with the predictions of capital structure theory except for small redistribution effects against bondholders the recapitalizations per se had no positive impact on common stock values

foreign direct investment exports and imports in mexico this paper analyses the liberalisation of foreign direct investment fdi in mexico since the late 1980s and its relationships with exports and imports such a process has eased the access of multinational corporations mncs to the country which has promoted exports however it has also resulted in a higher import content and the displacement of local firms which has limited mexico s economic development through the balance of payments constraint the analysis is supported by the existence of linkages bidirectional granger causality between exports imports and fdi

direct evidence on the marginal rate of taxation on dividend income abstract miller and scholes 1978 hypothesize that the marginal tax rate on dividend income may be less than the marginal rate of tax on capital gains their hypothesis is dependent upon individuals utilizing existing provisions of the code which serve to reduce the taxation of dividends in this study estimates of the marginal and effective rates of tax on dividend income for the year 1979 are presented using the statistics of income sample of returns the average marginal rate of tax on dividend income is estimated to be 40 while the average effective rate of tax is estimated to be 30

miller s irrelevance mechanism a note this note attempts to clarify miller s 12 capital structure irrelevance mechanism using a geometric edgeworth box diagrams presentation such an exercise is useful because miller s proposition is founded on analytically complex equilibrium arguments that tend to mask the intuition and logic behind his result since miller s original discussion unnecessarily assumed a zero tax on equity income and since miller did not prove his clientele effects rigorously we also focus our attention on the deangelo and masulis 8 9 henceforth d m generalization of the miller model the d m framework is also important because it assumes a proportional tax code as we shall see whether the tax code is proportional or progressive is an important factor in understanding miller s proposition

international capital structure equilibrium this paper develops a theory of capital structure in an international setting with corporate and personal taxes we generalize the miller analysis to an international equilibrium characterized by differential international taxation and inflation in otherwise perfect international capital markets our analysis highlights the key role that corporate tax arbitrage plays in generating an international capital structure equilibrium and we set forth a number of mechanisms for tax arbitrage transactions we close the paper by outlining some implications of our analysis for national differences in capital structure the international fisher effect and international tax effects on yield differentials among major questions regarding corporate capital structure which arise in an international setting are how or whether multiple tax jurisdictions and multiple currencies affect firm financing decisions and the international bond market equilibrium we examine some of these questions by way of generalizing miller s 1977 debt and taxes model into an international setting this setting allows for different tax regimes across countries as well as the possibility of differential inflation across currencies with consequent exchange rate movements in the first part of this paper we find that an international miller type equilibrium obtains under differential international taxation with capital market conditions which are otherwise analogous to those required for a domestic miller equilibrium our analysis particularly highlights the role that corporations play in miller s analysis as vehicles for tax arbitrage we show that if corporations engage in international tax arbitrage transactions on an equal footing no optimal capital structure exists for individual firms consequently without further restrictions differences in international tax rates alone are incapable of dictating a particular capital structure for an individual firm in the second part of the paper we extend the analysis to consider differential inflation rates with a consequent exchange rate movement and draw additional implications for the international analog of the miller equilibrium with differential inflation and taxation we begin by showing the existence of the international fisher effect for both equity and bonds although inflation and or exchange rate movements may affect real corporate tax subsidy rates and real

interest rates inflation and taxes the foreign connection abstract in this note it is shown that the existence of taxes on nominal interest receipts in an international setting introduces a non neutrality in that a change in expected inflation in one country must change at least one expected real interest rate or the path of the real exchange rate

debt agency costs and industry equilibrium we show that risk characteristics of projects cash flows are endogenously determined by the investment decisions of all firms in an industry as a result in reasonable settings financial structures which create incentives to expropriate debtholders by increasing risk are shown not to reduce value in an industry equilibrium without taxes capital structure is irrelevant for individual firms despite its effect on the equityholders incentives but the maximum total amount of debt in the industry is determinate allowing for a corporate tax advantage of debt capital structure becomes relevant but firms are indifferent between distinct alternative debt levels the effect of firms financial structures on subsequent investment and output decisions has recently received considerable attention in the finance literature the central insight that equityholders control the firm s investment and production decisions and in general do not maximize the value of a levered firm has been applied to the analysis of risk shifting underinvestment and firms abilities to enter into optimal contracts with their customers existing models of firms financial structures and their effect on investment decisions are generally based on a single firm framework and do not take into account the relationship between project cash flows and the investment decisions of all firms in the industry 2 in this paper we allow the distribution of investment projects within an industry to adjust and show that this generates new insights and reverses several key results of single firm agency cost models the new predictions conform with well documented

why do companies pay dividends this paper presents a simple model of market equilibrium to explain why firms that maximize the value of their shares pay dividends even though the funds could instead be retained and subsequently distributed to shareholders in a way that would allow them to be taxed more favorably as capital gains the two principal ingredients of our explanation are 1 the conflicting preferences of shareholders in different tax brackets and 2 the shareholders desire for portfolio diversification we show that companies will pay a positive fraction of earnings in dividends we also provide some comparative static analysis of dividend behavior with respect to tax parameters and to the conditions determining the riskiness of the securities this abstract was borrowed from another version of this item

debt and taxes abstract the extreme reliance on debt that has been a persistent feature of corporate finance in contemporary japan is at least partially due to low personal tax rates this statement is supported by comparison of japan and u s taxes based on the taxes and failure cost theory of finance

the market valuation of cash dividends abstract this paper re examines the case of citizens utilities a firm with one class of common stock which pays stock dividends and one which pays taxable cash dividends john long s 1978 study of the two shares relative prices suggests that investors may prefer cash dividends to equal sized stock dividends this paper finds that the cash dividend share s ex day price decline is less than their dividend payment stock dividend shares fall by nearly their full dividend the disparity between ex day dividend valuation and the observed prices of the two shares is inconsistent with some explanations of the demand for cash dividends

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

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

multinational capital structure and financial flexibility abstract we address multinational capital structure decisions when firms have varying degrees of financial flexibility for shifting income and or tax shields between subsidiaries we find 1 firms can use leverage to dramatically reduce negative valuation effects from operating in a high tax country 2 financial flexibility is a key determinant of optimal capital structure acting as both a substitute and a complement for leverage 3 multinational firms derive a synergistic effect from financial flexibility which can enhance their value beyond that for a single country firm from a low tax jurisdiction and 4 optimal capital structure typically differs substantially across subsidiaries with each having positions in multiple currencies

an equilibrium analysis of debt financing under costly tax arbitrage and agency problems in his recent paper merton miller 12 extends the notion of tax induced differential returns on securities into a general equilibrium framework in which firms make adjustments in the supply of corporate debt in an environment of progressive personal taxation the interest rates on taxable corporate bonds are greater than rates on tax exempt securities so as to compensate investors for the associated tax burden on the supply side value maximizing firms have an incentive to issue additional debt so long as the personal tax induced compensation is less than the tax savings from interest payment deductions at the corporate level miller argues that in the final equilibrium the interest rate differential between taxable and tax exempt bonds exactly reflects the tax advantage of debt financing at the corporate level thus the tax subsidy disappears in its entirety and we are back to an environment in which corporate leverage is inconsequential to the value of any particular firm what emerges in equilibrium is merely an optimal debt equity ratio for the corporate sector as a whole 1 miller derives this invariance proposition under the following assumptions 1 progressive personal tax rates reach a maximum at a level beyond the corporate tax rate 2 no tax arbitrage by individuals and firms is allowed 3 there is a personal tax rate differential in favor of income from stocks and 4 the opportunity for riskless borrowing and lending exists 2 indeed miller s equilibrium analysis is based on a zero effective personal tax rate on income from stocks but

export processing zones in the dominican republic transforming manufactures into commodities this paper examines the performance of export processing zones in the dominican republic it shows that in specializing in unskilled labor intensive export processing in the context of competitive devaluations between central american countries the dominican republic has experienced immiserizing employment growth in these circumstances the export of labor intensive manufactures is akin to that of primary commodities exporting countries which rely on unskilled labor and which fail to make the transition to higher value added production exports are thus likely to experience declining terms of trade the conclusions of this case study are considered to have wider relevance to world bank and international monetary fund inspired structural adjustment programs in the region

maquila economic reform and corporate strategies abstract corporate strategies in maquila have changed over time while they were originally geared only to the exploitation of low paid low skilled labor nowadays firms are upgrading human capital and increasing the scope and technological complexity of production processes the adoption of the new economic model in host countries aimed precisely at this type of strategy change but cannot solely be credited for it in addition policies regarding maquila under the nem did not achieve all the stated goals regarding corporate strategy change trends in local procurement and technology transfer are still unsatisfactory strengthening of local supply and absorption capabilities is required

a comparison of the labor force behavior of married women in the united states and canada with special attention to the impact of income taxes estimation results are presented for the probability of working the hourly wage rate and the annual hours of work for wives in seven different age groups in both the u s and canada federal and state or provincial taxes are incorporated into the analysis an iterative estimation method is employed to circumvent the statistical problems resulting from the dependence of the hours of work on the tax rate and the dependence of the tax rate on the hours of work authors

purchasing power interest rate parities and the modified fisher effect in presence of tax agreements abstract this paper shows that in a world with different rates of inflation and taxation in the presence of an international tax agreement the simultaneous coexistence of the purchasing power parity mechanism the interest rate parity mechanism and the revised fisher effect is impossible the analysis reveals a possible inherent instability of interest rates and exchange rates generated by inflation this instability is greater the larger the tax rate differentials among countries

the effects of capital controls on international capital flows in the presence of asymmetric information abstract this paper examines the effects of capital controls on the volume and composition of international capital flows in the presence of asymmetric information in the two period small open economy model stochastic second period output depends on the level of first period investment which cannot be verified by international investors domestic agents obtain external funding by borrowing on international capital markets and by selling equity to international investors the paper investigates the effects of various capital controls on the debt equity choice domestic investment and welfare controls on capital inflows are shown to shift the composition of flows from fixed income instruments towards equity and to reduce the overall volume of inflows

the effect of taxes and depreciation on corporate investment and financial leverage this paper provides an analysis of the effect of corporate and personal taxes on the firm s optimal investment and financing decisions under uncertainty it extends the deangelo aad masulis capital structure model by endogenizing the firm s investment decision the authors results indicate that when investment is allowed to adjust optimally the existing predictions about the relationship between investment related and debt related tax shields must be modified in particular the authors show that increases in investment related tax shields due to changes in the corporate tax code are not necessarily associated with reductions in leverage at the individual firm level in cross sectional analysis firms with higher investment related tax shields normalized by expected earnings need not have lower debt related tax shields normalized by expected earnings unless all firms utilize the same production technology differences in production technologies across firms may thus explain why the empirical results of recent cross sectional studies have not conformed to the predictions of deangelo and masulis

does the investment interest limitation explain the existence of dividends abstract miller and scholes have shown that under certain conditions the federal income tax taxes dividend income at a rate no higher than the rate on capital gains tabulations of actual 1977 tax returns show that the special circumstances under which this can occur apply to recipients of two and one half percent of dividend income and that no dominant role may therefore be ascribed to their hypothesis in the determination of corporate dividend policy

regulated competition in health care with or without a global budget abstract a major dilemma with respect to market oriented health care reforms is that politicians strongly focus on cost containment in the sense of stabilizing the fraction of gross national product to be spent on health care however we can not exclude the option that more competition will yield higher total health care costs this might induce politicians to put a global budget on health care expenditures in this paper we focus on the question whether regulated competition in health care should not be combined with a global budget

from regulated cartel to regulated competition in the dutch health care system abstract health care reform is quite a hot issue in the netherlands today since the early seventies government has been trying to contain health care costs by direct control over prices and productive capacities as the results of this policy were disappointing several proposals were formulated for a structural reform based on a market oriented approach in 1988 the dutch government decided to radically reform the financial structure and organization of the health care system two major issues are the introduction of a national health insurance basic insurance and regulated competition among insurers and among providers compared with the last 15 years this can be considered a 180 degree change over of health care policy because of the revolutionary character of the proposals one can really speak of a perestrojka in the dutch health care system in this paper the recent developments in the dutch health care system will be reviewed first we will deal with the necessity of change in the dutch health care system then the main lines of the government proposals for a new structure of the health care system will be summarized finally the consequences of these proposals for the various parties involved will be discussed

combining export processing zones and regional free trade agreements lessons from the mexican experience abstract export processing zones epzs and regional trade agreements are two common initiatives utilized by developing country governments in order to increase the wealth creation effects of today s international trade and investment system in this paper we argue that these two initiatives are driven by somewhat incompatible economic rationales based on the north american experiment in combining a major epz mexico s maquiladoras within the terms of a regional free trade agreement the north american free trade agreement we test to determine whether the logic of a regional integration initiative or that of the epz is dominate our results suggest that the competitive dynamics of mexico s epz industry have not been fundamentally altered by nafta s regional incentives we conclude with recommendations for policy makers in other developing countries that might be considering attempting to impose regional development schemes on the large and politically powerfully tncs that tend to dominate the global epz industry

global convergence of financing policies evidence for emerging market firms as globalization spreads one of the key challenges that emerging market firms face is how to finance their growth opportunities using data from close to 10 000 firms from more than 30 emerging markets this paper investigates how over time leverage is determined by firms business models and also by the overall country environment i find significant changes over the last two decades in the early 1990s country characteristics dominated firm characteristics and it was difficult for firms to overcome the limitations of their domestic environment as emerging markets became better integrated with the world economy the importance of firm characteristics has increased at the end of the sample period emerging market capital structure determinants resemble those of developed markets and country characteristics have become less important in explaining financing structures i also show how over the last two decades the maturity structure of debt has changed and that in recent years firms with more tangible assets are able to attract more debt financing overall i conclude that financing choices in emerging markets are now being made in the same way as in developed markets this means that emerging market firms now rely much more on their own strengths when obtaining debt than on country characteristics

organizing the health insurance market this paper presents a new approach to organizing universal health insurance first the government divides the entire population into many large groups then the government creates a federal health insurance system healthfed modeled on the federal reserve system to fill the role now played by the benefits office of a large firm the healthfed would create a short menu of alternatives solicit bids for insuring the entire group and price alternatives there would be redistribution between groups and pricing of alterna tives to reflect optimal social insurance principles there would be no connection between health insurance and employment it may seem odd that this presidential address is my first publication in health economics at the time when i might have been working on an alternative address i was chair of an expert panel for the advisory council on social security looking at issues in both retirement income and medical care 2 in the process of this work i have come up with a new approach to organizing universal health insurance that is the subject of this paper before starting on health insurance i will say a few words about a wider context offering what i will say as an example in that setting 3 a great deal of attention has been focused on the exciting issue of reorganizing economies dropping central planning commonly economists from those countries em brace capitalism or more specifically laissez faire competition with an enthusi asm which exceeds that ofwestern economists although not necessarily western businessmen yet laissez faire capitalism has received little serious support in the west for a very long time we all know the fundamental welfare theorem which shows many ways that capitalism can be imperfect we have also seen a growth in discussion and analysis of the many ways governments can mess up resource allocation the real question is the design of arrangements that try to integrate the things that each type of institution does better this is hard for two reasons one is that it is in the realm of second best with many constraints the more the constraints the harder the analysis the second is that we do not have good positive theories of government behavior good examples yes good theories no thus the analysis is more intuitive less theory driven than in our picture of private markets but also in our private market analyses we have been greatly complicating our picture recognizing all sorts of information imperfec tions that affect the way that private markets work so i will present to you a proposal for universal health insurance meant to combine something that