Production and financial decisions under uncertainty

Camelia Bejan

MPRA Paper from University Library of Munich, Germany

Abstract: This paper proposes a model of an incomplete markets economy with pro- duction, in which the firm acts as financial innovator by issuing claims against its stock. The firm’s objective is to maximize its adjusted value, which is the sum of the market value and the shareholders’ surplus from their trades in the stock markets. If a firm maximizes its adjusted value, then its financial policy is relevant (i.e., Modigliani-Miller theorem does not hold), equilibrium outcomes are stable to shareholders’ renegotiation and endogenously incomplete markets typically arise at the equilibrium. If the firm is competitive in the financial markets, the adjusted value coincides with the Grossman-Hart objective.

Keywords: firm’s objective; incomplete markets; shareholder preferences (search for similar items in EconPapers)
JEL-codes: D21 D52 G20 L21 (search for similar items in EconPapers)
Date: 2008-01-03
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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