Article Abstract:
We simultaneously address three basic issues regarding the corporation: the optimal scope of operation, the optimal financial structure, and the relationship between these two. The starting point is that financial structure serves as a bonding device on the managers' self-interest behavior. The effectiveness of this bonding depends on the distribution of the firm's future cash flow, which in turn depends on the firm's scope. Our theory also links the firm's investment decisions to its operation scope. As empirical implications, the theory reconciles the failure of the 1960s U.S. conglomerates with the success of the Japanese Keiretsu. (Reprinted by permission of the publisher.)
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Article Abstract:
This article presents evidence suggesting that the relationship that existed between the partnership of J.P. Morgan and its client firms partially resolved the latter's external financing problems by diminishing the principal-agent and asymmetric information problems. I estimate and compare investment regression equations for a sample of Morgan-affiliated companies and a control group of nonaffiliated companies. The econometric results seem to indicate that companies not affiliated to the House of Morgan were liquidity constrained. (Reprinted by permission of the publisher.)
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Article Abstract:
Personal and corporate income tax distortions arise in inflation. Capital gains taxes are greater and capital gains tax rates exceed real dividend tax rates. Firm policies are evaluated differently under inflation. Corporate borrowing plans are altered leading to equilbrium tax relationship.
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