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Stockholder Unanimity in Making Production and Financial Decisions

Author

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  • Sanford J. Grossman
  • Joseph E. Stiglitz

Abstract

We show that "spanning" does not imply stockholder unanimity if there is trading in the shares of firms. Each basis vector of the space spanned by all firms' output vectors can be treated like a composite commodity. If, in addition to spanning, firms act as price takers with respect to prices of composite commodities, then there is unanimity. We analyze the spanning assumption for the vector space of contingent claims generated by firms' choices of debt-equity ratios. We show that there is a strong relationship between the Modigliani-Miller theorem, spanning, and the existence of a complete set of markets.

Suggested Citation

  • Sanford J. Grossman & Joseph E. Stiglitz, 1980. "Stockholder Unanimity in Making Production and Financial Decisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(3), pages 543-566.
    • Handle: RePEc:oup:qjecon:v:94:y:1980:i:3:p:543-566.
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    File URL: http://hdl.handle.net/10.2307/1884584
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    Citations

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    Cited by:

    1. Chambers, Robert G. & Quiggin, John, 2009. "Separability of stochastic production decisions from producer risk preferences in the presence of financial markets," Journal of Mathematical Economics, Elsevier, vol. 45(11), pages 730-737, December.
    2. Didier Brandao,Tatiana & Levine,Ross Eric & Schmukler,Sergio L., 2015. "Capital market financing, firm growth, and firm size distribution," Policy Research Working Paper Series 7353, The World Bank.
    3. Mukherjee, Rahul, 2015. "Institutions, Corporate Governance and Capital Flows," Journal of International Economics, Elsevier, vol. 96(2), pages 338-359.
    4. Cortina, Juan J. & Ismail, Soha & Schmukler, Sergio L., 2018. "Firm financing and growth in the Arab region," Economic Systems, Elsevier, vol. 42(2), pages 361-383.
    5. Dainelli, Francesco & Bini, Laura & Giunta, Francesco, 2013. "Signaling strategies in annual reports: Evidence from the disclosure of performance indicators," Advances in accounting, Elsevier, vol. 29(2), pages 267-277.
    6. Tatiana Didier & Ross Levine & Sergio L. Schmukler, 2014. "Capital Market Financing, Firm Growth, Firm Size Distribution," NBER Working Papers 20336, National Bureau of Economic Research, Inc.
    7. Didier Brandao,Tatiana & Levine,Ross Eric & Schmukler,Sergio L., 2015. "Capital market financing, firm growth, and firm size distribution," Policy Research Working Paper Series 7353, The World Bank.
    8. Milo Bianchi & Rose-Anne Dana & Elyès Jouini, 2022. "Shareholder heterogeneity, asymmetric information, and the equilibrium manager," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(4), pages 1101-1134, June.
    9. Milo Bianchi & Rose-Anne Dana & Elyes Jouini, 2022. "Shareholder heterogeneity, asymmetric information, and the equilibrium manager," Post-Print hal-03693971, HAL.
    10. Joseph E. Stiglitz, 1982. "The Theory of Local Public Goods Twenty-Five Years After Tiebout: A Perspective," NBER Working Papers 0954, National Bureau of Economic Research, Inc.
    11. Milo Bianchi & Rose-Anne Dana & Elyès Jouini, 2022. "Equilibrium CEO contract with belief heterogeneity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(2), pages 505-546, September.
    12. Martin Guzman & Joseph E Stiglitz, 2020. "Towards a dynamic disequilibrium theory with randomness," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 36(3), pages 621-674.
    13. Josiah, Jairos & Burton, Bruce & Gallhofer, Sonja & Haslam, Jim, 2010. "Accounting for privatisation in Africa? Reflections from a critical interdisciplinary perspective," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 21(5), pages 374-389.
    14. Eva Carceles-Poveda & Arpad Abraham, 2005. "Complete Markets, Enforcement Constraints and Intermediation," 2005 Meeting Papers 661, Society for Economic Dynamics.
    15. Eva Carceles-Poveda, 2009. "Asset Prices and Business Cycles under Market Incompleteness," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 405-422, July.
    16. Claudio Loderer & Lukas Roth & Urs Waelchli & Petra Joerg, 2010. "Shareholder Value: Principles, Declarations, and Actions," Financial Management, Financial Management Association International, vol. 39(1), pages 5-32, March.
    17. Joseph E. Stiglitz, 1991. "Symposium on Organizations and Economics," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 15-24, Spring.
    18. St. Dwiarso Utomo & Zaky Machmuddah & Dian Indriana Hapsari, 2021. "The Role of Manager Compensation and Integrated Reporting in Company Value: Indonesia vs. Singapore," Economies, MDPI, vol. 9(4), pages 1-12, October.
    19. Webb, David C., 2007. "Pension plan funding, risk sharing and technology choice," LSE Research Online Documents on Economics 24641, London School of Economics and Political Science, LSE Library.
    20. Yann Algan & Olivier Allais & Eva Carceles-Poveda, 2009. "Macroeconomic Effects of Financial Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 678-696, October.
    21. Trunin, Pavel (Трунин, Павел), 2015. "Analysis of the Level of Development of the Financial System in the Russian Federation [Анализ Уровня Развития Финансовой Системы В Российской Федерации]," Published Papers mn38, Russian Presidential Academy of National Economy and Public Administration.
    22. Du, Xiuli & Ao, Zhu & Chai, Yiwei & Ge, Shilong, 2023. "Economic policy uncertainty, investor attention and post-earnings announcement drift," International Review of Financial Analysis, Elsevier, vol. 87(C).

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