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Miller's Equilibrium and Uncertainty

Author

Listed:
  • 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. 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.
    2. Alan J. Auerbach & Mervyn A. King, 1983. "Taxation, Portfolio Choice, and Debt-Equity Ratios: A General Equilibrium Model," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 587-609.
    3. Chris Jones & Frank Milne, 1992. "Tax Arbitrage, Existence of Equilibrium, and Bounded Tax Rebates," Mathematical Finance, Wiley Blackwell, vol. 2(3), pages 189-196.
    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.
    5. Haugen, Robert A & Senbet, Lemma W, 1978. "The Insignificance of Bankruptcy Costs to the Theory of Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 33(2), pages 383-393, May.
    6. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    7. Taggart, Robert A, Jr, 1980. " Taxes and Corporate Capital Structure in an Incomplete Market," Journal of Finance, American Finance Association, vol. 35(3), pages 645-659, June.
    8. Aivazian, Varouj A & Callen, Jeffrey L, 1987. " Miller's Irrelevance Mechanism: A Note," Journal of Finance, American Finance Association, vol. 42(1), pages 169-180, March.
    9. Sarig, Oded & Scott, James, 1985. " The Puzzle of Financial Leverage Clienteles," Journal of Finance, American Finance Association, vol. 40(5), pages 1459-1467, December.
    10. Han Kim, E. & Lewellen, Wilbur G. & McConnell, John J., 1979. "Financial leverage clienteles : Theory and evidence," Journal of Financial Economics, Elsevier, vol. 7(1), pages 83-109, March.
    11. Stiglitz, Joseph E, 1988. "Why Financial Structure Matters," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 121-126, Fall.
    12. Robert A. Taggart, Jr., 1980. "Taxes and Corporate Capital Structure in an Incomplete Market," NBER Working Papers 0594, National Bureau of Economic Research, Inc.
    13. Senbet, Lemma W & Taggart, Robert A, Jr, 1984. " Capital Structure Equilibrium under Market Imperfections and Incompleteness," Journal of Finance, American Finance Association, vol. 39(1), pages 93-103, March.
    14. Ross, Stephen A, 1985. " Debt and Taxes and Uncertainty," Journal of Finance, American Finance Association, vol. 40(3), pages 637-657, July.
    15. 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.
    16. Warner, Jerold B, 1977. "Bankruptcy Costs: Some Evidence," Journal of Finance, American Finance Association, vol. 32(2), pages 337-347, May.
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    More about this item

    Keywords

    CAPITAL ; BUSINESS FINANCING ; ARBITRAGE;

    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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