Article Abstract:
This paper provides a test of whether capital structure decisions are at least in part motivated by managerial self-interest. It is shown that the debt ratio is negatively related to management's shareholding, reflecting the greater nondiversifiable risk of debt to management than to public investors for maintaining a low debt ratio. Unless there is a nonmanagerial principal stockholder, no substantial increase of debt can be realized, which may suggest that the existence of large nonmanagerial stockholders might make the interests of managers and public investors coincide. (Reprinted by permission of the publisher.)
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Article Abstract:
Tax rate changes have a profound effect on market values, securities trading and the economy as a whole. Particularly affected are the values of risky assets which appear to react positively to some tax rate changes and negatively to others. A model is developed that incorporates human wealth as a key variable influencing increases in securities' values. Therefore, lower tax rates on personal income have a definite effect on stock prices and other financial instruments. A corollary of the model indicates that tax rate reductions cannot increase savings.
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Article Abstract:
Trading in options markets can be shown to have no negative effects on welfare consequences, by an extension of Pareto theories. Investor choices are affected by the opening of an options market, when profits can be made under conditions resembling equilibrium. A model of the extended theory demonstrates that the opening of the market does not affect the prices of original assets.
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