nach oben

Erschienen in:

2021 | OriginalPaper | Buchkapitel

2. The Value of the Firm and Its Securities

verfasst von : Umberto Sagliaschi, Roberto Savona

Erschienen in: Dynamical Corporate Finance

Verlag: Springer International Publishing

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This chapter has the fundamental role to introduce the reader to the basics of corporate finance. Broadly speaking, corporate finance is the branch of economic science which deals with the financing and investment decisions of firms, and how these decisions affect the value of corporate securities and their financial returns. A security is a contingent claim liability issued by a company, which attributes certain control rights to its holders. Control rights include, but are no restricted to, receiving certain cash flow streams. For instance, common stocks attribute the right to shareholders to receive dividends, as well as equal voting rights. Firms are not directly tradable, while their liabilities are. The set of the outstanding securities characterizes the ensemble of the control rights, and therefore the set of individuals that are entitled to split the (free) cash flows generated by the firm. Accordingly, the value of a firm is defined as the market value of its securities, net of cash and other equivalent risk-free assets. Netting for liquidity allows to identify the going concern value of the business, which is generally higher than the accounting book value of invested capital (fixed assets plus trade working capital).

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Vorheriges Kapitel Introduction

Nächstes Kapitel Borrowing Constraints, Debt Dynamics and Investment Decisions

We use the term solvent as a synonym of a active (non-defaulted) firm at a generic time t.

As a technical aside, notice that in this example there could be no role for debt covenants, as debt is due at the same date at which new information is released.

In the legal jargon, the firm fills for bankruptcy protection.

A constant tax rate implies that the firm receives a net transfer from the government when its net income is negative. It is sometimes a good approximation in situations in which the loss carry-forwards can be quickly used.

Projects are indexed by the date in which they are available, which corresponds to the time index of the economy.

Usually assumed as benchmark rule in optimal capital budgeting.

Although the underlying economic mechanism is different, this result is not infrequent with this “kind” of investment opportunities. An example is the industry equilibrium is in Leahy (1993).

An example is an individual investing in a factory right in front of her home. If engaging in a new project increases pollution, there is a negative externality for her.

This is a very important assumption which we discuss at the end of Sect. 2.3.3.2.

Notice that cost of shifting is agreed beforehand between HoldCo and SubCo, as α_t affects SubCo’s costs for period t + 1.

Efficiency gains are often advocated to promote M&A activities.

The most important examples are leveraged loans in Europe.

The index s is always sufficient to characterize all the relevant information pertaining to a certain type of securities in circulation. In particular, we do not need to keep track of the date at which a specific security was issued, as its maturity date, if any, will be equal to that of the other securities belonging to the same class.

In this regard, securities other than “plain vanilla” bonds and equity may be used to attenuate the diverging interests between share and debt holders, although not always with success. For instance, Hennessy and Tserlukevich (2004) shows that issuing warrants do not resolve the shareholders asset substitution problem in a dynamic setting, while it may exacerbate debt overhang.

Amaro de Matos, J. (2001). Theoretical foundations of corporate finance. Princeton University Press.

Black, F., & Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81(3), 637–654.CrossRef

DeMarzo, P. M. (1988). An extension of the Modigliani-Miller theorem to stochastic economies with incomplete markets and interdependent securities. Journal of Economic Theory, 45(2), 353–369.CrossRef

DeMarzo, P. M., & Urosevic, B. (2006). Optimal trading and asset pricing with a large shareholder. Journal of Political Economy, 114(4), 774–815.CrossRef

Dow, J., & Raposo, C. C. (2005). Ceo compensation, change, and corporate strategy. The Journal of Finance, 60(6), 2701–2727.CrossRef

Easton, P. (2007). Estimating the cost of capital implied by market prices and accounting data. Foundations and Trends® in Accounting, 2(4), 241–364.CrossRef

Gordon, M. J. (1959). Dividends, earnings, and stock prices. The Review of Economics and Statistics, 41(2), 99.CrossRef

Grossman, S. J., & Hart, O. D. (1980). Takeover bids, the free-rider problem, and the theory of the corporation. The Bell Journal of Economics, 11(1), 42.CrossRef

Hamada, R. S. (1972). The effect of the firm’s capital structure on the systematic risk of common stocks. The Journal of Finance, 27(2), 435–452.CrossRef

Hart, O. D. (1995). Firms, contracts, and financial structure. Clarendon Press.CrossRef

Hellwig, M. F. (1981). Bankruptcy, limited liability, and the Modigliani-Miller theorem. The American Economic Review, 71(1), 155–170.

Hennessy, C. A., & Tserlukevich, Y. (2004). Analyzing callable and convertible bonds when the Modigliani-Miller assumptions are violated. SSRN Electronic Journal.

Hou, K., van Dijk, M. A., & Zhang, Y. (2012). The implied cost of capital: A new approach. Journal of Accounting and Economics, 53(3), 504–526.CrossRef

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.CrossRef

Leahy, J. V. (1993). Investment in competitive equilibrium: The optimality of myopic behavior. The Quarterly Journal of Economics, 108(4), 1105–1133.CrossRef

Lucas, R. E. (1978). Asset prices in an exchange economy. Econometrica, 46(6), 1429.CrossRef

Mella-Barral, P., & Perraudin, W. (1997). Strategic debt service. The Journal of Finance, 52(2), 531–556.CrossRef

Merton, R. C. (1973). Theory of rational option pricing. The Bell Journal of Economics and Management Science, 4(1), 141.CrossRef

Merton, R. C. (1974). On the pricing of corporate debt: The risk structure of interest rates. The Journal of Finance, 29, 449–470.

Merton, R. C. (1977). On the pricing of contingent claims and the Modigliani-Miller theorem. Journal of Financial Economics, 5(2), 241–249.CrossRef

Miller, M., & Modigliani, F. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261–297.

Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. The Journal of Business, 34(4), 411.CrossRef

Miller, M. H., & Modigliani, F. (1963). Corporate income taxes and the cost of capital: A correction. The American Economic Review, 53(3), 433–443.

Morellec, E., Nikolov, B., & Schurhoff, N. (2010). Corporate governance and capital structure dynamics. The Journal of Finance, 67(3), 803–848.CrossRef

Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147–175.CrossRef

Penman, S. H., Zhu, J., & Wang, H. (2019). The implied cost of capital: Accounting for growth. SSRN Electronic Journal.

Sargent, T. J. (1987). Dynamic economic theory. Harvard University Press.

Sethi, S. P., Derzko, N. A., & Lehoczky, J. P. (1991). A stochastic extension of the Miller-Modigliani framework. Mathematical Finance, 1(4), 57–76.CrossRef

Sethi, P., Derzko, N. A., & Lehoczky, L. P. (1996). Erratum to “a stochastic extension of the Miller-Modigliani framework”. Mathematical Finance, 6(4), 407–408.CrossRef

Sethi, S. (1995). An extension of ‘dividend policy, growth, and the valuation of shares’ by Miller and Modigliani. SSRN Electronic Journal.

Shleifer, A., & Vishny, R. W. (1992). Liquidation values and debt capacity: A market equilibrium approach. The Journal of Finance, 47(4), 1343–1366.CrossRef

Stiglitz, J. E. (1969). A re-examination of the Modigliani-Miller theorem. The American Economic Review, 59(5), 784–793.

Tirole, J. (2001). Corporate governance. Econometrica, 69(1), 1–35.CrossRef

Tirole, J. (2005). The theory of corporate finance. Princeton University Press.

Zwiebel, J. (1996). Dynamic capital structure under managerial entrenchment. The American Economic Review, 86(5), 1197–1215.

Titel: The Value of the Firm and Its Securities
verfasst von: Umberto Sagliaschi
Roberto Savona
Verlag: Springer International Publishing
Buch: Dynamical Corporate Finance
Print ISBN: 978-3-030-77852-1

Electronic ISBN: 978-3-030-77853-8

Copyright-Jahr: 2021
DOI: https://doi.org/10.1007/978-3-030-77853-8_2