The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
AFA members can log in to view full-text articles below.
View past issues
Search the Journal of Finance:
Search results: 14.
International Capital Structure Equilibrium
Published: 12/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb03725.x
JAMES E. HODDER, LEMMA W. SENBET
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.
Resolving the Agency Problems of External Capital through Options
Published: 06/01/1981 | DOI: 10.1111/j.1540-6261.1981.tb00649.x
ROBERT A. HAUGEN, LEMMA W. SENBET
This paper investigates the role of stock options in resolving the agency problems of external capital as originally identified by Jensen and Meckling (1976). These problems are precipitated by managerial incentives a) to consume excessive non‐pecuniary benefits or perquisites beyond the optimal level for sole ownership and b) to engage in risk shifting in productive decisions so as to transfer wealth from external capital contributors. These incentive problems can be resolved through a strategy that judiciously combines call and put options retained by the owner‐manager and external financiers, respectively. The resolution of the agency problems through this mechanism provides an economic rationale for the existence of managerial stock options and convertible debt.
The Effect of Taxes and Depreciation on Corporate Investment and Financial Leverage
Published: 06/01/1988 | DOI: 10.1111/j.1540-6261.1988.tb03944.x
ROBERT M. DAMMON, LEMMA W. SENBET
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 and 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.
A RATIONALE FOR DEBT MATURITY STRUCTURE AND CALL PROVISIONS IN THE AGENCY THEORETIC FRAMEWORK
Published: 12/01/1980 | DOI: 10.1111/j.1540-6261.1980.tb02205.x
AMIR BARNEA, ROBERT A. HAUGEN, LEMMA W. SENBET
The agency costs of debt are introduced in this paper to explain the existence of complex financial instruments. Two areas of complexities are discussed in detail: the call provision and the maturity structure of debt. Their existence is rationalized as a means of resolving agency problems associated with informational asymmetry, managerial (stockholder) risk incentives, and foregone growth opportunities. It is also demonstrated that both features of corporate debt serve identical purposes in solving agency problems. Complex financial instruments are required because markets fail to provide complete and costless solutions to the agency problems discussed in the paper.
Capital Structure Equilibrium under Market Imperfections and Incompleteness
Published: 03/01/1984 | DOI: 10.1111/j.1540-6261.1984.tb03862.x
LEMMA W. SENBET, ROBERT A. TAGGART
This paper generalizes Miller's supply‐side equilibrium argument to other forms of capital market imperfections and incompleteness. If corporations possess a comparative advantage in dealing with these imperfections, they have an incentive to act as financial intermediaries. Corporations' attempts to profit from these intermediation activities dictate an optimal capital structure for the corporate sector as a whole, but in equilibrium the capital structure of any single firm is a matter of indifference. In addition, the positive role that corporate finance plays in completing the market restores standard perfect market results on asset pricing and the associated portfolio separation properties.
International Arbitrage Pricing Theory: An Empirical Investigation
Published: 06/01/1986 | DOI: 10.1111/j.1540-6261.1986.tb05038.x
D. CHINHYUNG CHO, CHEOL S. EUN, LEMMA W. SENBET
In this paper, we test the arbitrage pricing theory (APT) in an international setting. Inter‐battery factor analysis is used to estimate the international common factors and the Chow test is used in testing the validity of the APT. Our inter‐battery factor analysis results show that the number of common factors between a pair of countries ranges from one to five, and our cross‐sectional test results lead us to reject the joint hypothesis that the international capital market is integrated and that the APT is internationally valid. Our results, however, do not rule out the possibility that the APT holds locally or regionally in segmented capital markets. Finally, the basic results of both the inter‐battery factor analysis and the cross‐sectional tests are largely invariant to the numeraire currency chosen.