Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 174: Property Rights and Corporate Finance

Richard A. Graff and Joseph P. Kairys Jr. ()
Additional contact information
Richard A. Graff: Electrum Partners L.L.C., Postal: Chicago, IL
Joseph P. Kairys Jr.: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG

Abstract: We examine a central result in corporate finance – the Modigliani-Miller capital structure irrelevance proposition – from a Coasian property rights perspective. Building upon the work of Coase, Demsetz and Cheung, we develop an enabling methodology to study the impact of positive Coasian transaction costs. When the Modigliani-Miller assumption of default-free debt is relaxed in the analysis of corporate leverage, either long-lived transaction costs related to property rights must be explicitly assumed away, or long-lived transaction costs related to property rights must be incorporated into the analysis.

Keywords: property rights; transaction costs; capital structure

JEL-codes: D23; G32

32 pages, August 23, 2005

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