Lemma W. Senbet, Discussion: Signaling, Information Content, and the Reluctance to Cut Dividends, The Journal of Financial and Quantitative Analysis, Vol. 15, No. 4, Proceedings of 15th Annual Conference of the Western Finance Association, June 19-21, 1980, San Diego, California (Nov., 1980), pp. 871-873

Lemma W. Senbet, International Capital Market Equilibrium and the Multinational Firm Financing and Investment Policies, The Journal of Financial and Quantitative Analysis, Vol. 14, No. 3 (Sep., 1979), pp. 455-480

Robert A. Haugen, Lemma W. Senbet, Bankruptcy and Agency Costs: Their Significance to the Theory of Optimal Capital Structure, The Journal of Financial and Quantitative Analysis, Vol. 23, No. 1 (Mar., 1988), pp. 27-38

Fewings [5] and Myers and Turnbull [13] have arrived at diametrically conflicting conclusions regarding the effect of growth on risk as measured by beta, the relative systematic risk in the Sharpe-Lintner-Mossin (SLM) capital asset pricing model. Fewings states his result in an unequivocal way: “…systematic capitalization risk of common stocks is undoubtedly a positive function of the rate of growth of expected corporate earnings” ([5, p. 53]) Myers and Turnbull, on the other hand, state their result in a more conditional form, making the result depend on the nature of market expectations revisions but conclude that “increasing the growth rate decreases B …” ([13], P. 327).

The two related problems of agency and informational asymmetry have received increasing attention in finance. In particular, prominent authors in this area (e.g., Jensen and Meckling [7], Ross [15, 16], Leland and Pyle [10], etc.) have demonstrably argued that the financial structure of the firm can be determined in the process of eliminating, or at least reducing, the costs associated with these problems.

This paper develops a theory of capital structure in an international setting with corporate and personal taxes. We generalize the Miller analysis to an international equilibrium characterized by differential international taxation and inflation in otherwise perfect international capital markets. Our analysis highlights the key role that corporate tax arbitrage plays in generating an international capital structure equilibrium, and we set forth a number of mechanisms for tax arbitrage transactions. We close the paper by outlining some implications of our analysis for national differences in capital structure, the International Fisher Effect, and international tax effects on yield differentials.

This paper develops a theory of capital structure in an international setting with corporate and personal taxes. We generalize the Miller analysis to an international equilibrium characterized by differential international taxation and inflation in otherwise perfect international capital markets. Our analysis highlights the key role that corporate tax arbitrage plays in generating an international capital structure equilibrium, and we set forth a number of mechanisms for tax arbitrage transactions. We close the paper by outlining some implications of our analysis for national differences in capital structure, the International Fisher Effect, and international tax effects on yield differentials.

This paper provides an analysis of the effect of corporate and personal taxes on the firm's optimal investment and financing decisions under uncertainty. It extends the DeAngelo and Masulis capital structure model by endogenizing the firm's investment decision. The authors' results indicate that, when investment is allowed to adjust optimally, the existing predictions about the relationship between investment-related and debt-related tax shields must be modified. In particular, the authors show that increases in investment-related tax shields due to changes in the corporate tax code are not necessarily associated with reductions in leverage at the individual firm level. In cross-sectional analysis, firms with higher investment-related tax shields (normalized by expected earnings) need not have lower debt-related tax shields (normalized by expected earnings) unless all firms utilize the same production technology. Differences in production technologies across firms may thus explain why the empirical results of recent cross-sectional studies have not conformed to the predictions of DeAngelo and Masulis.

This paper provides an analysis of the effect of corporate and personal taxes on the firm's optimal investment and financing decisions under uncertainty. It extends the DeAngelo and Masulis capital structure model by endogenizing the firm's investment decision. The authors' results indicate that, when investment is allowed to adjust optimally, the existing predictions about the relationship between investment‐related and debt‐related tax shields must be modified. In particular, the authors show that increases in investment‐related tax shields due to changes in the corporate tax code are not necessarily associated with reductions in leverage at the individual firm level. In cross‐sectional analysis, firms with higher investment‐related tax shields (normalized by expected earnings) need not have lower debt‐related tax shields (normalized by expected earnings) unless all firms utilize the same production technology. Differences in production technologies across firms may thus explain why the empirical results of recent cross‐sectional studies have not conformed to the predictions of DeAngelo and Masulis.