Stocks differ in the variability of their prices; thus, as the level of stock market prices swings periodically, one observes a change in structure as the prices of more volatile issues change relative to those of a more stable character. Here we attempt to empirically establish some of the differentiating characteristics of these volatile issues. In doing so we add to the empirical and analytical work of Fritzemeier [4], Clendenin [2], Latané [7], Malkiel [8], and Heins and Allison [6]. Only the last of these efforts used regression techniques.

The traditional valuation framework is unsuited to the task of valuing a growth stock when the capitalization rate is specified in terms of market leverage, simply because it is impossible to maintain a constant ratio of book to market leverage over the growth horizon. This severely limits the usefulness of the traditional model in analyzing the valuation problem. We have proposed a more general form of the model which allows us to show the consistency between M-M's Propositions I and II under growth.

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

In the late 1930s, Macaulay [7] and Hicks [6] independently introduced the concept of duration as a measure of the length of a stream of cash flows and a measure of the elasticity of the present value of the stream with respect to a change in the rate of discount, respectively. Approximately 15 years later, Reddington [8] and Heynes and Kirton [5] used the concept to develop interest rate immunization rules for the portfolio management of insurance companies. More recently, Fisher and Weil [1] have developed duration based rules to help investors find investments that will insure them of having some fixed amount of money available at a specific future point in time. In [2], Grove uses duration to link the investor's decision to speculate or immunize with his subjective forecast of future interest rate movements. Finally, Haugen and Wichern [3, 4] show the relationship between duration and the characteristics of bonds and stocks. Also, in analyzing the effect of financial leverage on interest rate risk, they demonstrate how the financial manager can manipulate the capital structure of his firm, so as to render the present value of the common stock insensitive to changes in the rate of interest.

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.

Robert A. Haugen, A. James Heins, Risk and the Rate of Return on Financial Assets: Some Old Wine in New Bottles, The Journal of Financial and Quantitative Analysis, Vol. 10, No. 5 (Dec., 1975), pp. 775-784

This study has addressed itself to that group most immediately affected in corporate acquisition, the stockholders of acquired companies. We find that in the years observed, acquired company stockholders seem to have benefited from the acquisitions. This study differs from other studies of post-merger performance of the common stock of acquirors and not the performance of securities received by acquirees in exchange for their common stock. It should also be noted that most of the financial gain resulting from the acquisitions accrued at the time of merger because of substantial premiums paid by acquirors. While the stockholders of the acquired companies have, on average, benefited, these results tell us little of the effect of mergers on the welfare of society or, for that matter, of their effect on the stockholders of the acquiring firm. If the merger cannot be justified on the basis of some economy of scale or synergistic advantage, the newcomers reap their lucrative returns only at the expense of the old guard. If the acquiring firm pays a premium in acquisition on the basis of justifiably sound expectations of increased profits, social welfare is not necessarily enhanced. Increased profitability may not reflect increased efficiency; it may, for example, be a manifestation of decay in the competitive environment.

Robert A. Haugen, James L. Pappas, Equilibrium in the Pricing of Capital Assets, Risk-Bearing Debt Instruments, and the Question of Optimal Capital Structure: A Reply, The Journal of Financial and Quantitative Analysis, Vol. 7, No. 4 (Sep., 1972), pp. 2005-2008

We have discussed some of the effects of rate regulation in the property and casualty insurance industry. One consequence of the regulatory environment is that an optimal capital structure may clearly exist in this industry. If the rate of return to the insureds is generally deficient, we would expect that property and casualty stock companies would have an incentive to lever themselves to the maximum extent permissible by selling insurance. The classic monopoly of the economic literature finances its lucrative investment opportunities in a competitive capital market. The stock insurance company invests in that market, but the relative distribution of the return earned there may be less than equitable due to the process and standards of rate regulation.

Robert A. Haugen, James L. Pappas, Equilibrium in the Pricing of Capital Assets, Risk-Bearing Debt Instruments, and the Question of Optimal Capital Structure, The Journal of Financial and Quantitative Analysis, Vol. 6, No. 3 (Jun., 1971), pp. 943-953