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The relevance of financial policy

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  • DETEMPLE, J.
  • GOTTARDI, P.
  • POLEMARCHAKIS, H.M.

Abstract

When the asset market is incomplete, equilibrium allocations are not invariant to changes in the financial policies of firms: in the presence of secondary assets, such as options, whose payoffs depend nonlinearly on the price of equity, the range of attainable reallocations of revenue varies as a firm alters its position in the asset market. Corporate financial policy is thus relevant. When assets are nominal, monetary policy implemented through open market operations is effective.
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Suggested Citation

  • Detemple, J. & Gottardi, P. & Polemarchakis, H.M., 1995. "The relevance of financial policy," LIDAM Reprints CORE 1157, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1157
    DOI: 10.1016/0014-2921(94)00106-A
    Note: In : European Economic Review, 39, 1133-1154, 1995
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    References listed on IDEAS

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    1. Hellwig, Martin F, 1981. "Bankruptcy, Limited Liability, and the Modigliani-Miller Theorem," American Economic Review, American Economic Association, vol. 71(1), pages 155-170, March.
    2. Mas-Colell,Andreu, 1990. "The Theory of General Economic Equilibrium," Cambridge Books, Cambridge University Press, number 9780521388702, September.
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    4. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66(6), pages 467-467.
    5. Eckwert, Bernhard, 1993. "Allocative effects of financial assets and the long run neutrality of money when markets are incomplete," European Economic Review, Elsevier, vol. 37(1), pages 75-95, January.
    6. Gottardi Piero, 1994. "On the Non-neutrality of Money with Incomplete Markets," Journal of Economic Theory, Elsevier, vol. 62(1), pages 209-220, February.
    7. John Geanakoplos & Heracles M. Polemarchakis, 1985. "Existence, Regularity, and Constrained Suboptimality of Competitive Allocations When the Asset Market Is Incomplete," Cowles Foundation Discussion Papers 764, Cowles Foundation for Research in Economics, Yale University.
    8. DeMarzo, Peter M., 1988. "An extension of the Modigliani-Miller theorem to stochastic economies with incomplete markets and interdependent securities," Journal of Economic Theory, Elsevier, vol. 45(2), pages 353-369, August.
    9. Stiglitz, Joseph E, 1974. "On the Irrelevance of Corporate Financial Policy," American Economic Review, American Economic Association, vol. 64(6), pages 851-866, December.
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    Cited by:

    1. Polemarchakis, H. M. & Seccia, G., 2000. "A Role for Monetary Policy when Prices Reveal Information: An Example," Journal of Economic Theory, Elsevier, vol. 95(1), pages 107-115, November.
    2. Chongmin Kim, 2004. "Corporate financial policy with pension accounts: an extension of the Modigliani-Miller theorem," International Economic Journal, Taylor & Francis Journals, vol. 18(2), pages 215-236.
    3. Jacques H. Drèze & Heracles M. Polemarchakis, 2001. "Intertemporal General Equilibrium and Monetary Theory," International Economic Association Series, in: Axel Leijonhufvud (ed.), Monetary Theory as a Basis for Monetary Policy, chapter 2, pages 33-71, Palgrave Macmillan.
    4. Dahai Yu, 1998. "Two equivalence theorems for government finance," International Finance Discussion Papers 622, Board of Governors of the Federal Reserve System (U.S.).

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