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.
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A Theory of Capital Structure Relevance under Imperfect Information
Published: 12/01/1982 | DOI: 10.1111/j.1540-6261.1982.tb03608.x
ROBERT HEINKEL
Firms raise debt and equity capital to finance a positive net present value project in perfectly competitive capital markets; firm insiders know the function generating the random firm cash flow but potential capital suppliers do not. Taking into account the incentives of insiders to misrepresent their firm type, capital suppliers attempt to design financing mixes of debt and equity that eliminate the adverse incentives of insiders and correctly price securities. Necessary conditions for a costless separating equilibrium are developed to show that the amount of debt used by a firm is monotonically related to its unobservable true value.
DISCUSSION
Published: 07/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb05025.x
ROBERT HEINKEL
Defensive Mechanisms and Managerial Discretion
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb01117.x
RONALD GIAMMARINO, ROBERT HEINKEL, BURTON HOLLIFIELD
We study a model where firms may possess free cash flow and takeovers may be disruptive. We show that the possibility of a takeover, combined with defensive mechanisms and the ability to pay greenmail, can solve the free cash flow problem in an efficient way. The payment of greenmail reveals information that generates a stock price decline that exceeds the value of the greenmail payment, even though the payment of greenmail is value maximizing. Optimal defensive measures limit takeover attempts if the target stock price is too low. We also provide cross‐sectional implications of the analysis.
Rights versus Underwritten Offerings: An Asymmetric Information Approach
Published: 03/01/1986 | DOI: 10.1111/j.1540-6261.1986.tb04488.x
ROBERT HEINKEL, EDUARDO S. SCHWARTZ
By assuming asymmetric information between investors and firms seeking new equity, we derive a rational expectations, partially revealing information equilibrium in which three forms of equity financing are observed. The highest quality firms employ a standby rights offers, intermediate quality firms signal their true value in the choice of a subscription price in an uninsured rights offer, while low‐quality firms remain indistinguishable to investors by making fully underwritten issues. The model offers justification for many firms using apparently more costly underwritten offers, provides a reason why firms using uninsured rights offers do not set arbitrarily low subscription prices to ensure the success of the issue, and explains the simultaneous existence of the three financing vehicles.
Signaling and the Valuation of Unseasoned New Issues
Published: 03/01/1982 | DOI: 10.1111/j.1540-6261.1982.tb01091.x
DAVID H. DOWNES, ROBERT HEINKEL
This paper is an empirical examination of the relation between firm value and two potential actions by entrepreneurs attempting to signal to investors information about otherwise unobservable firm features. The signals investigated are the proportion of equity ownership retained by entrepreneurs and the dividend policy of the firm; both signals are hypothesized to be positively related to firm value. Using a sample of unseasoned new equity issues, the empirical results are consistent with the entrepreneurial ownership retention hypothesis, but the dividend signaling hypothesis is rejected.
A Model of Dynamic Takeover Behavior
Published: 06/01/1986 | DOI: 10.1111/j.1540-6261.1986.tb05049.x
RONALD M. GIAMMARINO, ROBERT L. HEINKEL
Several observed features of takeover contests appear to be inconsistent with value‐maximizing behavior on the part of the agents involved. For instance, managers occasionally resist takeover bids, presumably in order to facilitate competition among bidders. However, counterbids do not always materialize, suggesting that management resistance was not in the best interests of the firm's shareholders. On the other hand, a successful takeover is sometimes accompanied by a decrease in the value of the acquirer's shares. In addition, valuable combinations are occasionally not consummated.
Dynamic Capital Structure Choice: Theory and Tests
Published: 03/01/1989 | DOI: 10.1111/j.1540-6261.1989.tb02402.x
EDWIN O. FISCHER, ROBERT HEINKEL, JOSEF ZECHNER
This paper develops a model of dynamic capital structure choice in the presence of recapitalization costs. The theory provides the optimal dynamic recapitalization policy as a function of firm‐specific characteristics. We find that even small recapitalization costs lead to wide swings in a firm's debt ratio over time. Rather than static leverage measures, we use the observed debt ratio range of a firm as an empirical measure of capital structure relevance. The results of empirical tests relating firms' debt ratio ranges to firm‐specific features strongly support the theoretical model of relevant capital structure choice in a dynamic setting.