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The relevance of financial policy

Author

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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. 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.
    2. Geanakoplos, J. & Polemarchakis, H., 1985. "Existence,regularity, and constrained suboptimality of competitive allocations when the asset market is incomplete," LIDAM Discussion Papers CORE 1985037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Gottardi, Piero, 1995. "An Analysis of the Conditions for the Validity of Modigliani-Miller Theorem with Incomplete Markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(2), pages 191-207, March.
    4. 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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    6. Mas-Colell,Andreu, 1990. "The Theory of General Economic Equilibrium," Cambridge Books, Cambridge University Press, number 9780521388702.
    7. Gottardi Piero, 1994. "On the Non-neutrality of Money with Incomplete Markets," Journal of Economic Theory, Elsevier, vol. 62(1), pages 209-220, February.
    8. Mas-Colell,Andreu, 1985. "The Theory of General Economic Equilibrium," Cambridge Books, Cambridge University Press, number 9780521265140.
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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. Dahai Yu, 1998. "Two equivalence theorems for government finance," International Finance Discussion Papers 622, Board of Governors of the Federal Reserve System (U.S.).
    3. 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.
    4. 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.

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