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Merton Miller (1993)
The economics and politics of index arbitrage in the U.S. and JapanPacific-basin Finance Journal, 1
Merton Miller, F. Modigliani (1961)
DIVIDEND POLICY, GROWTH, AND THE VALUATION OF SHARESThe Journal of Business, 34
Footnotes 1 . The calculations to follow are adapted from the finite growth model presented in Merton H. Miller and Franco Modigliani , “ Dividend Policy, Growth and the Valuation of Shares ,” Journal of Business , Vol. 24 , No. 4 ( October 1961 ), pp. 411 – 433 . I have taken the value of rbo (the risk‐adjusted cost of capital) as 10 percent (what else?) and the value of & (the investment‐to‐earnings ratio) as 1.0. A firm with a market‐to‐book ratio of 1.0 corresponds to a “no growth‐premium firm” with average internal rate of return ( rho‐star ) just equal to the cost of capital. 2 . For an account of how MOF systematically uses its regulatory powers to sustain the Japanese brokerage industry cartel and to support the level of stock prices, see my articles, “ The Economics and Politics of Index Arbitrage in the U.S. and Japan ,” Pacific-Basin Finance Journal , Vol. 1 , No. 1 ( May 1993 ), pp. 3 – 11 ; and “Japanese‐American Trade Relations in the Financial Services Industry,” Working Paper, Graduate School of Business, University of Chicago (September 1993). 3 . See Merton Miller and Myron
Journal of Applied Corporate Finance – Wiley
Published: Jan 1, 1994
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