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Miller's Equilibrium and Uncertainty

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  • Jones, C.

Abstract

This paper highlights the arbitrage by firms in Miller's (1977) equilibrium when consumers face (short) selling constraints to restrict tax arbitrage. In this competitive equilibrium firms create risky tax-preferred securities that divide investors into strict tax clienteles; any changes in debt-equity ratios by individual firms have no real effects on consumers because other firms undo them.

Suggested Citation

  • Jones, C., 1999. "Miller's Equilibrium and Uncertainty," ANU Working Papers in Economics and Econometrics 1999-373, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:1999-373
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp373.pdf
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    References listed on IDEAS

    as
    1. Chris Jones & Frank Milne, 1992. "Tax Arbitrage, Existence of Equilibrium, and Bounded Tax Rebates1," Mathematical Finance, Wiley Blackwell, vol. 2(3), pages 189-196, July.
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    4. Dammon, Robert M & Green, Richard C, 1987. "Tax Arbitrage and the Existence of Equilibrium Prices for Financial Assets," Journal of Finance, American Finance Association, vol. 42(5), pages 1143-1166, December.
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    10. DeAngelo, Harry & Masulis, Ronald W, 1980. "Leverage and Dividend Irrelevancy under Corporate and Personal Taxation," Journal of Finance, American Finance Association, vol. 35(2), pages 453-464, May.
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    12. Harris, John M, Jr & Roenfeldt, Rodney L & Cooley, Philip L, 1983. "Evidence of Financial Leverage Clienteles," Journal of Finance, American Finance Association, vol. 38(4), pages 1125-1132, September.
    13. Robert A. Taggart, Jr., 1980. "Taxes and Corporate Capital Structure in an Incomplete Market," NBER Working Papers 0594, National Bureau of Economic Research, Inc.
    14. Alan J. Auerbach & Mervyn A. King, 1983. "Taxation, Portfolio Choice, and Debt-Equity Ratios: A General Equilibrium Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(4), pages 587-609.
    15. Sarig, Oded & Scott, James, 1985. "The Puzzle of Financial Leverage Clienteles," Journal of Finance, American Finance Association, vol. 40(5), pages 1459-1467, December.
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    More about this item

    Keywords

    CAPITAL ; BUSINESS FINANCING ; ARBITRAGE;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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