Knowledge that Transforms

We show that for certain capital structures equity has an incentive to buy out another claim and alter the firm's investment strategy so as to maximize the combined value of equity and the acquired claim. This restructuring may reintroduce agency problems into capital structures which appear to avoid agency conflicts. By bundling claims, it is possible to avoid this agency problem. The agency problem is also eliminated by dispersed ownership of the claims.

Preface Introduction Investing Decisions: Changes in Organizational Structure Investing Decisions: Changes in Ownership Structure Financing Decisions and Capital Structure Financial Policy Operating Decisions: Earnings and Forecasts The Market for Corporate Control Defense Tactics in the Market for Corporate Control Management Compensation and the Managerial Labor Market Management Response to Investor Decisions Bibliography Index

ABSTRACT The ratio of the yields on short‐term tax‐exempt and taxable bonds exhibits a sawtooth pattern that is consistent with the impacts of tax deferments from dates on which interest payments are received to dates on which the resulting tax payments are paid. The effect of the tax deferment at turns of calendar years does not differ appreciably from the effect at the turn of any other tax quarter. Investors with tax payment schedules that differ from that of the investor that is indifferent between investing in taxable and tax‐exempt bonds may benefit from tax‐related timing strategies for investing in these bonds. Issuers may benefit from tax‐related timing strategies for scheduling interest payments.