We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
SECURITY AND A FINANCIAL THEORY OF INVESTMENT: COMMENT.
- Authors
Mendelson, Morris
- Abstract
This article comments on security and financial theory of investment. The theory developed there is based on two fundamental propositions: a firm has a target risk ratio which it will not exceed and there are important institutional and psychological impediments to outside equity financing. The risk ratio is not only a function of the conventional debt equity ratio, but it is also functionally related to the quick ratio. An improvement in either of these conventional ratios will be reflected in the risk ratio. In a straightforward public offering, the larger the stock offering, the more the price of the stock is going to have to fall if the stock is to be absorbed by the market. It makes little difference whether the fall takes place in the price offered to the public or in the price paid by the underwriter. The problem may appear less pressing in the case of pre-emptive rights offerings. Even here, however, where the price seems immaterial, since it all goes to the stockholder in any ease, the number of shares that must be offered will be determined by the price to the stockholder.
- Subjects
INVESTMENTS; PRICES of securities; DEBT-to-equity ratio; CORPORATE finance; STOCKHOLDERS; ACCOUNTS payable; RIGHTS offerings
- Publication
Quarterly Journal of Economics, 1962, Vol 76, Issue 2, p311
- ISSN
0033-5533
- Publication type
Article
- DOI
10.2307/1880823