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- Title
Forward Markets, Stock Markets, and the Theory of the Firm.
- Authors
MACMINN, RICHARD D.
- Abstract
This paper models a competitive financial market economy in which there are forward markets as well as stock and bond markets. Although there are separation theorems in the stock and forward markets literatures, this analysis shows that neither separation theorem survives in this integrated financial market economy. Next, the analysis shows that the separation results hold and are equivalent if the manager has an appropriate compensation package. Then the model is modified to allow for depreciation charges and tax credits. A positive theory of hedging is developed that shows that the corporation can preserve deductions and credits by hedging and so increase corporate value.
- Subjects
CORPORATE finance; THEORY of the firm; STOCK exchanges; BOND market; FINANCIAL markets; HEDGING (Finance); DEPRECIATION; TAX credits; ECONOMIC models; VALUATION of corporations; RISK assessment; INVESTMENT analysis
- Publication
Journal of Finance (Wiley-Blackwell), 1987, Vol 42, Issue 5, p1167
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.1987.tb04359.x