Modern financial theory

THE AUTHOR FIRST DEFINES THE AREA OF FINANCIAL STRATEGY AS CONSISTING OF DEBT, DIVIDEND, AND INVESTMENT POLICIES. MODERN THEORY HOLDS THAT IF WE ASSUME PERFECT CAPITAL MARKETS, NO TAXES, AND NO GROWTH, THE FINANCING DECISION CANNOT AFFECT THE TOTAL VALUE OF THE FIRM. WITH RESPECT TO DIVIDENDS, THE T...

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Bibliographic Details
Published in:Business horizons 1972-02, Vol.15 (1), p.89-96
Main Author: Simkowitz, Michael A
Format: Article
Language:English
Subjects:
Alliances
Financial
Strategy
Theory
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Summary:THE AUTHOR FIRST DEFINES THE AREA OF FINANCIAL STRATEGY AS CONSISTING OF DEBT, DIVIDEND, AND INVESTMENT POLICIES. MODERN THEORY HOLDS THAT IF WE ASSUME PERFECT CAPITAL MARKETS, NO TAXES, AND NO GROWTH, THE FINANCING DECISION CANNOT AFFECT THE TOTAL VALUE OF THE FIRM. WITH RESPECT TO DIVIDENDS, THE THEORY ARGUES THAT ANY ARTIFICIAL DIVISION OF THE BENEFIT STREAM SHOULD HAVE NO MATERIAL EFFECT ON THE WORTH OF THE ENTERPRISE. AS FOR INVESTMENTS, TWO FIRMS IN THE SAME EQUIVALENT RETURN CLASS WILL MAINTAIN THE RELATIONSHIP BETWEEN THEIR OPERATING EARNINGS REGARDLESS OF OTHER FACTORS. IN SHORT, MODERN FINANCIAL THEORY RECOGNIZES THAT EXTRAORDINARY OPPORTUNITIES ARE EXPLOITATIONS OF MARKET IMPERFECTIONS.
ISSN:0007-6813
1873-6068
DOI:10.1016/0007-6813(72)90026-2