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Embedding Minsky´s taxonomy of cash flows into a corporate finance framework (The microeconomic linkage between speculative and Ponzi schemes)

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  • Rodolfo Apreda

Abstract

When Minsky put forward his financial instability hypothesis, he resorted – among other macroeconomic tools of analysis – to categories like income, balance-sheet, and portfolio cash flows, so as to cope with the successive stages of hedging, speculative and Ponzi schemes. This paper makes two contributions to the lively debate arousing from Minsky’s ideas. Firstly, it embeds Minsky’s taxonomy into the incremental cash-flow model that has become part and parcel of the modern approach to Corporate Finance. Secondly, and by means of the referred model, we set up a microeconomic linkage to financial instability, by showing how hedging, speculative and Ponzi devices actually break off the natural mutuality that binds together so effectively cash flows from assets – which create economic value – with those to be delivered toward both creditors and stockholders.

Suggested Citation

  • Rodolfo Apreda, 2012. "Embedding Minsky´s taxonomy of cash flows into a corporate finance framework (The microeconomic linkage between speculative and Ponzi schemes)," CEMA Working Papers: Serie Documentos de Trabajo. 497, Universidad del CEMA.
  • Handle: RePEc:cem:doctra:497
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    File URL: http://www.ucema.edu.ar/publicaciones/download/documentos/497.pdf
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    References listed on IDEAS

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    1. Frederic S. Mishkin, 1999. "Global Financial Instability: Framework, Events, Issues," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 3-20, Fall.
    2. Rodolfo Apreda, 2012. "Opaque governance, special purpose vehicles, and the preacher´s waiver," CEMA Working Papers: Serie Documentos de Trabajo. 481, Universidad del CEMA.
    3. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
    4. Rodolfo Apreda, 2002. "Incremental cash flows, information sets and conflicts of interest," CEMA Working Papers: Serie Documentos de Trabajo. 220, Universidad del CEMA.
    5. Hyun Song Shin, 2009. "Reflections on Northern Rock: The Bank Run That Heralded the Global Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 101-119, Winter.
    6. Joshua Coval & Jakub Jurek & Erik Stafford, 2009. "The Economics of Structured Finance," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 3-25, Winter.
    7. Rodolfo Apreda, 2004. "Corporate Rent-Seeking and the managerial soft-budget constraint," CEMA Working Papers: Serie Documentos de Trabajo. 283, Universidad del CEMA.
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    More about this item

    Keywords

    Minsky’s taxonomy of cash flows; incremental cash flow model; financial instability; Ponzi scheme; speculative finance.;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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