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Equilibrium Corporate Finance
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1725-6704
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EUI ECO; 2010/01
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BISIN, Alberto, GOTTARDI, Piero, RUTA, Guido, Equilibrium Corporate Finance, EUI ECO, 2010/01 - https://hdl.handle.net/1814/13221
Abstract
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.