The relevance of financial policy
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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- Joseph E. Stiglitz, 1972.
"On the Irrelevance of Corporate Financial Policy,"
Cowles Foundation Discussion Papers
339, Cowles Foundation for Research in Economics, Yale University.
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- Mas-Colell,Andreu, 1990.
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- 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.
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