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SUMMARY:CF Weekly Workshop - by Ranadeva Jasasekera - 'A general theory of
  the firm'  - Ranadeva Jayasekera\, a lecturer from Southampton (ex Cambri
 dge PhD)
DTSTART:20121120T170000Z
DTEND:20121120T180000Z
UID:TALK40687@talks.cam.ac.uk
CONTACT:Sheryl Anderson
DESCRIPTION:We develop a general theory of the firm that models investment
  and financing decisions simultaneously. Equity holders maximise sharehold
 er value over an infinite time horizon through selecting optimal time path
 s of capital stock. Growth in capital stock is subject to investment const
 raints determined by the availability of internal and external finance. In
  order to reach the steady state faster and maximise value\, equity holder
 s can select debt and equity issues. The firm's investment decision and ex
 ogenous price shocks influence cash flows. Hence\, the firm exhibits defau
 lt risk due to exogenous shocks and investment decisions.\n\nDebt holders 
 select the debt ceiling\, which defines the firm's debt capacity\, to cont
 rol their exposure to default risk. Cost of debt is determined on the mark
 et for external finance and reflects default risk.\n\nThe model shows that
  capital structure affects firm value if the firm has not reached its stea
 dy state. In the absence of information asymmetry\, the model establishes 
 a pecking order of internal and external finance. Once the firm approaches
  its steady state\, the model converges to the classic Irrelevance Theory.
  Hence\, the model is a general theory of the special case described by Mo
 digliani and Miller (1958).
LOCATION:Barbara White Room\, Newnham College
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