Type: Working Paper
Equilibrium Corporate Finance
Working Paper, EUI ECO, 2010/01
BISIN, Alberto, GOTTARDI, Piero, RUTA, Guido, Equilibrium Corporate Finance, EUI ECO, 2010/01 - http://hdl.handle.net/1814/13221
Retrieved from Cadmus, EUI Research Repository
We study a general equilibrium model with production where financial markets are incomplete. At a competitive equilibrium firms take their production and financial decisions so as to maximize their value. We show that shareholders unanimously sup- port value maximization. Furthermore, competitive equilibria are constrained Pareto efficient. Finally the Modigliani-Miller theorem typically does not hold and the firms’ corporate financing structure is determined at equilibrium. Such results extend to the case where informational asymmetries are present and contribute to determine the firms’ capital structure.
Cadmus permanent link: http://hdl.handle.net/1814/13221
Series/Number: EUI ECO; 2010/01