Debt and Taxes and Uncertainty

With a graduated personal tax schedule, Miller showed that there could be an equilibrium debt supply for the corporate sector as a whole. In the presence of uncertainty there is also a unique debt/equity ratio for each individual firm, and this ratio is related to the firm's operational risk characteristics. However, if firms merge and spin off in response to tax incentives, the identity of firms is ambiguous and only the corporate sector is a meaningful construct. These arguments are developed in both discrete and continuous models that employ extensions of the arbitrage-free pricing theory.     

Funds Statements and the Two-Entity Test: A Reponse

Robb (1985) criticizes the two-entity test proposed by McKinnon et al. (1983) as confusing and contradictory. This reply demonstrates that his criticisms also are confusing and contradictory.     

The Structure of Corporate Ownership in Japan

I examine the structure of corporate ownership in a sample of Japanese firms in the mid 1980s. Ownership is highly concentrated in Japan, with financial institutions by far the most important large shareholders. Ownership concentration in independent Japanese firms is positively related to the returns from exerting greater control over management. This is not the case in firms that are members of corporate groups (keiretsu). Ownership concentration and the accounting profit rate in both independent and keiretsu firms are unrelated. The results are consistent with the notion that there exist two distinct corporate governance systems in Japan —one among independent firms and the other among firms that are members of keiretsu.