ECON 252 (2008) - Lecture 11 - Stocks

Lecture 11 - Stocks


The stock market is the information center for the corporate sector. It represents individuals' ownership in publicly-held corporations. Although corporations have a variety of stakeholders, the shareholders of a for-profit corporation are central since the company is ultimately responsible to them. Companies offer dividends, stock repurchases and stock dividends to give profits back to shareholders or to signal information. Companies can also take on debt to raise capital, creating leverage. The Modigliani-Miller theory of a company's leverage in its simplest form implies the leverage ratio doesn't matter, but including bankruptcy costs and tax effects give us a positive theory of the ratio.



Jeremy Siegel, Stocks for the Long Run, chapters 6, 7, 8 and 9

Richard Brealey et al. Principles of Corporate Finance, chapters 16 and 17

Johnson, Simon, Rafael La Porta, Florencio Lopez-di-Silanos, and Andrei Shleifer, "Tunneling," American Economic Review, 2000, 90 (2), pp. 22-7.

Problem Set 4

Course Media





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