Leverage, Market value of debt, Debt-Equity ratio, Risk

State-preference theory has developed as a choice-theoretic framework through which many problems of finance and economics dealing with time and uncertainty can be analyzed. Hirshleifer [3], [4], [5], [6] has used the approach to provide significant insights to areas such as production and exchange, investment decisions, and speculative behavior. However, the theory has not made progress in attempting to incorporate state-labeled utility functions into the body of the theory. This paper will develop a method of graphically and analytically allowing for differing utility functions across states. As a further step, the impact of belief-deviation upon the tangency optimum will be discussed. Finally, the significance of these findings upon the consideration of risk will be discussed.

Abstract ABSTRACT: This study empirically investigates the relationship of capital leases to the market risk of lessees. The capitalized value of leases, as reported to the SEC under ASR-147, was used to measure the value of lease obligations. A multiple regression model was tested with market risk (β) as the dependent variable and an, accounting β, debt-to-equity ratio and leases-to-equity ratio as independent variables. Initial tests found the lease variable was not significantly associated with market risk. However, the leverage and lease variables were highly correlated. Two tests were developed to overcome the multicollinearity problem. Both tests found that when the multicollinearity was controlled, leases made a significant contribution to the association tests on market risk.

I. Introduction, 240. — II. Price variations models of oligopoly, 241. — III. An experimental oligopoly market, 242. — IV. Hypotheses, 248. — V. Procedure, 249. — VI. Results, 251. — VII. Discussion, 257. — VIII. Summary and conclusions, 259.