Finance Theories Taxonomy
Finance Theories Taxonomy
Grace S. Thomson
1
Finance Theories Taxonomy
2
Finance Theories Taxonomy
This document presents a taxonomy of selected finance theories developed in past 5
decades by academics, practitioners and scholars in the United States, Europe, Asia and Latin
America. A total of 14 theories and models are synthesized in this work, organized in five tables
with the same structure: Theories of capital structure; capital budgeting and cost of equity; asset
valuation, financial behavior and international finances.
Each table contains theories organized alphabetically with an indication of its germinal or
current character. The description of the theory is accompanied by current examples of empirical
research that updates or contradicts the theory and additional information about limitations,
scope and opportunities of research.
Finance Theories Taxonomy
3
Table 1
Finance Theories Taxonomy: Theories of capital structure
Theory
General description
Current examples of the theory
Other attributes
Modigliani and Miller
Germinal theory of corporate finance
A review of the theory by
Criticism against flaws of M& M theory
Theory of investment
proposed by Miller and Modigliani
Miller himself, offers a new
(Ball, 2001)
(1958) argues that “the value of a firm
view about the so called ‘junk
1. Market perfection. M&M assumed
is independent of its capital structure”
bonds’ which were considered
information was complete and
(Miller, 2001)
undesirable and non-tradable
symmetric, when it was not
Dividends and capital structure are
during the 60s when low-risk
2. Easy acceptance of firms with high
irrelevant in the determination of stock was the norm.
levels of debt trading off for tax-
prices in the market. (Miller and
Thirty years after the M&M
deductible benefits
Modigliani, 1958; Chew, 2001);
proposal, junk bonds seem to
instead the market value of a firm is
provide dynamism in the
were not influenced by financial
based on the “earning power of the
market and have helped
decisions.
assets currently held and on the size
develop the preference for
(Ball, 2001)
and relative profitability of the
Leveraged Buyouts LBOs not
3. Assumption that investment decisions
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
4
Other attributes
investment opportunities” (Miller &
only in small firms but among
This theory was revised in the 80s, and
Modigliani, 1958, p. 663)
large firms (Miller, 2001)
called "Tax-adjusted M&M". It
The valuation method of a firm is
New characteristics in
suggested that highly leveraged
based on the capitalization of
corporate governance followed
structures, which substitute deductible
operating earnings before interest and
the LBOs of large firms. Miller interest payments for non-deductible
taxes, whereas Durand (1958) -one of
cites “strip financing” as one
dividends could push optimal capital
the first critics of the theory- proposed
of them (Miller, 2001, p. 192)
structure to 100% debt (Miller &
Modigliani, 1958)
capitalization after interest and taxes,
accompanied by an adjustment for
leverage (Miller, 2001, p. 185)
Agency Cost Theory
Germinal Theory proposed by Jensen
Dogan and Smyth (2002)
The desire for high rewards induces
and Meckling (1976) that analyzes the
conducted a study of 223
managers to manipulate, overestimate or
conflict between shareholders and
companies listed in the Kuala
underestimate indicators to make them
managers - agents of shareholders.
Lumpur Stock Exchange
more achievable in detriment of the
KLSE using the agent theory
value of the firm, e.g. low budgets,
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
Conflict arises because shareholders
to test relationships between
require payouts for their investment,
corporate performance,
reducing internal resources controlled
performance criteria and
by managers (Jensen, 1986). Since
executive compensation.
managers are compensated on the
basis of accounting profits, it increases
the incentives to manipulate
information and/or favor projects with
poor NPV if they provide immediate
profits (Dogan & Smyth, 2002). This
has negative consequences of potential
loss in value of public corporations
5
Other attributes
inefficient debt targets.
Jensen & Meckling (1976) contend that
the agency costs of separating
ownership from control should not be
Results showed that the
excessive provided that factors such as
theoretically positive
competition, executive labor market,
relationship between board
and incentive plans are designed to
remuneration and firm
reduce the self-interest of managers.
performance was weaker in
Malaysia than in U.K. or U.S.
mostly explained by
This theory relates to the Free Cash
Flow theory proposed by Jensen in
1986.
concentration of ownership.
(Jensen & Meckling, 2001, p. 18).
Agency costs of Free
Current theory proposed by Jensen
LBOs are another way to both
The theory justifies the massive
Finance Theories Taxonomy
Theory
Cash Flow Theory
General description
6
Current examples of the theory
Other attributes
(1986) and built upon the Jensen &
reduce the agency costs of free
substitution of debt for equity of the 80s,
Meckling’s theory of the agency
cash flow and impose
arguing that cash flow was going to pay
(2001), FCF is “the cash flow in
discipline and efficiency
interests and principal and not to
excess of that required to fund all
(Stewart, 2001) however they
“investment ratholes” (Miller, 2001, p.
projects that have positive net present
increase the, agency costs of
xix)
values when discounted at the relevant
debt.
cost of capital” (Jensen, 1986; Stewart
LBOs provide additional benefits to
NABISCO was an example of
reduce the agency costs of a firm: (1)
a rich firm interested in
Reallocation of resources, (2)
FCF is the sum of the cash flow to
aggressive investment
Squeezed out capital for growth ,
equity and cash flow to debtholders
opportunities instead of paying
however the media did not depict the
after interest-tax-shield (Shrieves &
out dividends to stockholders
real impact of LBOs as being beneficial
Wachovicz, 2001).
(Stewart, 2001)
(Chew, 2001, p. xxi)
III, 2001).
The theory contends that by replacing
dividends for debt, managers will be
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
7
Other attributes
forced to transfer excessive cash flows
`to investors and limit the allocation of
resources to low-return projects
(Miller, 2001).
Pecking-order theory of
Current theory proposed by Myers and
Brounen et al (2004) studied
Typical issues observed in the
capital structure
Mailuf (1984) based on the hypothesis
firms in Europe and US to
application of Pecking order theory are:
that financing follows hierarchy, and
understand factors that
that firms prefer internal over external
determine their capital
financing and debt over equity.
structure. Financial flexibility
The underlying factor is the
was the factor that most
asymmetry of information: The more
importantly drove capital
When firms respond “yes” to these
asymmetry, the higher the costs of the
structure, suggesting a
questions, it is an indication of the
sources of financing (Brounen et al,
“pecking order” model
application of the theory. Brounen’s
2004).
application (Brounen, et al,
study rejected this hypothesis (Brounen
a.
Debt is encouraged when firm
experience insufficient profits?
b. Debt is encouraged when equity
is undervalued?
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
2004, p. 94).
8
Other attributes
et al, 2004, p. 94).
Static trade-off theory of
Current theory that contends that firms In a study by Brounen et al
Application of the trade off theory
capital structure
trade off the costs and benefits of
(2004) CFOs in Europe and
requires a two step process
leverage associated with tax effects,
US were asked about the
1.
bankruptcy and agency costs, in order
importance of agency costs
2. Choose elements to include in
to generate a target capital structure
and bankruptcy. Europeans
the trade off: financial
for the firm (Brounen et al, 2004, p.
considered bankruptcy costs as
flexibility, credit rating,
93)
the 4th more important after
volatility of earnings, tax
Firms that respond to the static trade-
financial flexibility, credit
advantage, transaction cost, debt
off theory, have managers whose
ratings and earnings volatility.
level of other firms, potential
incentive to issue stock to keep the
Their results prove that static-
costs of bankruptcy) Brounen et
EPS dilution (Bancel & Mittoo, 2004,
trade off theory reflects the
al (2004), p. 96 (Brounen et al,
p.112).
behaviors of corporate
2004, p. 96)
managers (Bancel & Mittoo,
2004; Brounen et al, 2004).
Define a target capital structure
Finance Theories Taxonomy
9
Table 2
Finance Theories Taxonomy: Theories of capital budgeting and cost of equity
Theory
General description
Current examples of the theory
Other attributes
Economic Value Added
Current theory of Economic Value
In Research & Development,
Application of EVA® requires change
Theory
Added EVA ® was designed by Stern
EVA is used to improve the
in the organizational culture and fiscal
Stewart & Co (1982).
treatment of outlays as
responsibility (Hatfield, 2002)
It is an alternative model to CAPM
investment given their value-
EVA is not a new concept, it is deemed
used in capital budgeting because it
creation character.
“practical, highly flexible, a refinement
focuses on the ability of a firm to
Hatfield (2002) prepared a
of economists’ concept of residual
create wealth from the point of view
study to demonstrate the effect
income’ (Drucker as cited in Stewart &
of the economic model and not the
of capitalizing R&D. Outlays
Stern, 1996)
accounting model (Abate, Grant, and
for new products when R&D is For other authors EVA is a financial
Stewart III, 2004, p. 62).
expensed perform worse than
fiction inoperable unless markets were
Strong competition of the Earning Per
flows of outlays of a
efficient (Chen & Dodd, 2002).
Share EPS model that prevailed in
capitalized R&D across time.
The formula to compute EVA is
America before the 90s (Stern,
Firms reported by Stern &
expressed (Hatfield, 2002)
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
10
Other attributes
Stewart & Chew, 1996) and more real
Stewart Co. as active users of
EVA = NOPAT – CC (1)
than Return on Equity ROE, Free
EVA include: Bausch and
NOPAT= Net operating profit after
Cash Flow FCF and other methods
Lomb, The Coca Cola Co.,
taxes
based in the Accounting model
Georgia-Pacific Corp.,
CC= cost of capital x economic capital
(Hatfield, 2002).
Monsanto, Rubbermaid Inc.
Four steps are required : (1) Determine
It is an integrated financial system
among others (Hatfield, 2002)
the Net profit after taxes plus interest
used in decision making and different
charges (2) Estimate market value of
corporate applications: Performance
company’s equity (3) Calculate the
measurement, determination of
opportunity cost of the capital and (4)
shareholder value, valuation of equity
Compute EVA (Gonzalez, 2006)
(Hatfield, 2002; Stern, Stewart III and
Chew 1996).
The Sharpe-Lintner
Germinal theory developed separately
A survey conducted by
Fama and French (1996) critique CAPM
Capital Asset Pricing
by William Sharpe (1964) and John
Brounen et al, (2004) reported
flaws in recording anomalies of the
Lintner (1965) and used to identify the
CAPM was used by 64.2% of
Finance Theories Taxonomy
Theory
Model (CAPM)
General description
Current examples of the theory
adequate cost of capital in project
U.S. firms and an average of
valuation (Brounen et al, 2004).
57% of European companies,
Ball (2001, p. 24) defines it as a
“method of estimation expected
returns which passive investors would
otherwise have earned in the absence
of the information being tested”
with high occurrence in large
and public firms across the
data of 6,500 firms, where
CEOs have long tenures,
regardless of their educational
11
Other attributes
market and expected returns (p. 1948).
CAPM’s major weakness is in the
determination of betas in efficient
markets (Ball, 2001) and the inability to
explain the temporality of risk
premiums and the amount of the
expected changes in that risk ratio.
background.
An equation for CAPM may look as
Some theorists contend CAPM is not a
follows (Ball, p. 30):
valid model to compute expected
E(R) = Rf + β (Rm – Rf)
returns, given the premise that dividends
(1)
and earnings are non-fundamental to
Stock’s expected return E(R) is equal
stock pricing determination. Its use in
to a riskless rate Rf plus a risk
the computation of EVA® also has
premium compound by β and the
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
amount a stock of average risk (Rm) is
12
Other attributes
been challenged (Chen & Dodd, 2002).
expected to earn above the riskless
Divided opinions classify CAPM as a
rate (Rf).
result of the EMH (Efficient Market
CAPM is popular because there is no
Theory) (Ball, 2001); others argue that
any other accepted model to compute
the assumption that CAPM evaluates
expected returns (Chen & Dodd, 2002,
only efficient portfolios does not imply
p. 509)
that CAPM derives from Fama’s
Efficient Market Hypothesis (EMH).
Theory of Discounted
Current theory of Discounted Cash
Brounen et al (2004) surveyed
In asset valuation, DCF compares the
Cash Flow
Flow (DCF) used in capital budgeting
6,500 companies from the
intrinsic value of a firm by discounting
or project valuation, asset valuation
United Kingdom, Netherlands,
the expected future free cash flows
(Myers, 2003; Shrieves & Wachovicz,
France and Germany and U.S.
(FCF) using a rate that reflects the cost
2001) and securities valuation
to assess the behavior of
of capital” (Stewart, 2001, p. 34).
financial officers regarding the
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
13
Other attributes
(Shrieves & Wachovicz, 2001).
use of financial techniques
DCF compares the future returns of
Results suggested that
potential projects by discounting the
European firms do not apply
future cash flow at a rate that reflects
DCF techniques as much as
the yield of similar securities in the
they use payback criterion.
DCF main critiques derive from the use
market (Myers, 2003).
Authors argue that most
of traditional financial reporting
European firms are small and
(Shrieves & Wachovicz, 2001) and the
private, and their CEOs do not
vulnerability to political forces within
have MBA degrees which
the organization (Myers, 2001)
Internal Return rate (IRR), net present
value (NPV), adjusted present value
(APV) and discounted payback period
are DCF techniques (Brounen et al,
2004)
Myers (2001) highlights the
usefulness of NPV but cautions about
could imply an increase use of
discounted techniques.
Bias against long-lived projects is a
challenged result of DCF, reinforcing
the argument of management shortsightedness in the 80s (Myers, 2001).
The multi-use of DCF is achieved
through a combination with Free Cash
The study also found that those Flow (FCF) techniques and with EVA®
firms declaring that they
for purposes of evaluation of managerial
maximize shareholder value
performance (Shrieves & Wachovicz,
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
the difficulties when defining discount
use discounting techniques
rates, forecasting cash flows,
most frequently (Brounen et al,
estimating time series and dealing
2004).
with the stringent accounting
principles (Shrieves & Wachovicz,
2001).
Other attributes
2001; Stewart III, 2001).
14
Finance Theories Taxonomy
15
Table 3
Finance Theories Taxonomy: Theories of Asset Valuation
Theory
General description
Current examples of the theory
Theory of the stock
Germinal theory discussed by Eugene
Following the theory of market
Limitations of the model include the
market efficiency
Fama (1965) and French (1965) and
efficiency Anderson and
unreal assumption that information is a
again by Ball and Brown (1968).
Garcia-Feijoo (2006)
commodity and is costless.
Eugene Fama (1965)
Efficient markets are characterized by
competition among “profit
maximizers” who attempt to estimate
the value of securities in the future
relying on the information they have
(Fama as cited by Ball, 2001).
Fama and French divided valuation
portfolios in two: Value Stock firms
(with high book to market) and growth
conducted a study to test that
firm valuation and valuation
ratios respond to optimal
corporate investment
decisions.
The model tested consistently
with the predictions of Fama
and French theory but also
concluded that pricing factors
Other attributes
International applications of the Fama
and French model require a countryspecific study to observe particular
patterns of corporate investment activity
(Anderson & Garcia-Feijoo, 2004, p.
192)
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
stock (with low book-to market value)
resulting from size and book-
(Anderson & Garcia- Feijoo, 2006).
to-market portfolios become
Theory predicts that portfolio with low
b/m value will have an increased
return before portfolio formation and
irrelevant when
macroeconomic conditions of
growth prevail (p. 175)
then would decrease. This return to
Anderson and Garcia-Feijoo
equilibrium was a key element in the
suggest including a fourth
model (Fama and French 1996).
factor (investment-growth
Fama and French (1992, 1993, 1996)
proposed a three-factor model that
describes variations in time that may
affect the measurement of stock
return: Book-to market ratio, size and
factor) to the model of Fama
and French, in order to help
explain the anomalous returns
in portfolios (Anderson &
Garcia-Feijoo, 2004, p. 174,
191)
Other attributes
16
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
17
Other attributes
excess market return.
Theory of the stock
Germinal theory is based on Fama
In the mid 60s Ball and Brown
Limitations of the theory are analyzed
market efficiency
(1965) definition of efficiency.
performed a study to evaluate
by Ball (2001) himself and divided in 3
Ray Ball and Phillip
Brown (1978, p.17) defines efficient
how stock market reacted to
categories: Empirical anomalies, defects
Brown (1968)
capital markets as “one in which it is
announcements of annual
as a model of stock market and
earnings.
problems in testing the efficiency of the
impossible to earn an abnormal return
model.
by trading on the basis of publicly
They analyzed 2300 annual
available information”.
earnings reports of 300 NYSE
Empirical anomalies include problems
companies, between 1956-
in fitting the theory to the data because
1964
of seasonal patterns.
the assumption of available
Ball and Brown found an
Defects in efficiency as a model of stock
information about the earnings of a
upward movement in stock
market comprise not incorporating
firm, traditionally expressed by
price after announcement of
information costs, transaction costs,
Fama (1965) and Brown (1968)
definitions have a common element:
Finance Theories Taxonomy
Theory
General description
Earning per share (EPS).
Ball and Brown (1968) tried to explain
the behavior of the stock market
which was not of main interest by
economists but statisticians. After
The Market efficiency concept was the
Current examples of the theory
18
Other attributes
increase in earnings, and slight
oversimplifying academic analysis and
downwards after
ignoring market microstructure effects
announcement of decreases in
(Ball, p. 25)
earnings. In a period of six
months afterwards net earnings
were close to 0.
base for other theories such as: Miller
The conclusion was that stock
and Modigliani Theory of corporate
prices did reflect the
finance policy; Sharpe-Lintner Capital
information announced
Asset Pricing Model (CAPM) and
annually (p.21)
Black-Scholes option pricing model.
Market microstructure effect explains
“how investors’ latent or hidden
demands are ultimately translated into
prices and volumes” (Madhavan, 2002)
Problems in the model relate to
definition of risk-less rates, market risk
premium, individual betas and the
volatility of the stock prices.
The Black-Scholes option Germinal theory proposed by Black
New studies have included
In a simple definition the model is
pricing model
variables that make the model
written (Versluis & Hillegers, 2006) as a
and Scholes (1973) and developed
Finance Theories Taxonomy
Theory
General description
along with Merton’s Theory of
Rational Option Pricing (1973).
Current examples of the theory
more adaptive to reality.
Versluis and Hillegers (2006)
Based on a portfolio of stocks and
proposed a modification to the
options on the stocks which valuation
model to include the effect of
is based on the assumptions of short-
re-financing at the end of the
term horizon, fixed interest rates,
short-term interval.
prices for the underlying assets, no
dividend payments, no selling or
buying options and abilities to borrow
and short sell (Versluis & Hillegers,
2006)
Versluis & Hillegers (2006)
add a parameter that accounts
19
Other attributes
function with 4 variables:
Π = Qt=t S – c
Π = value of portfolio
Qt=t = fraction of stocks
S = price of underlying asset
c = value of European call option on the
underlying asset
for the drift of the stock price
This model has been improved to
process which applied to a
include other variables e.g.
study of seven Dutch stocks
“distributions of dividends, interest rate
Its main characteristic is its
and showed better fit than the
satisfactory fit to market data, but its
original model.
changes, trading cost, taxes and
(…)stochastic volatility” (Versluis &
two more criticized flaws are
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
“moneyness (or volatility smile) and
The Chicago Board Options
time to maturity” (Blyinski & Fasruk,
Exchange (SBOE) was the first
2006, p. 47; Versluis & Hillegers,
one in using the Black and
2006, p. 261).
Scholes model in 1973 and
continues to use the newly
developed neural models and
implied volatility variables.
Other attributes
Hillegers, 2006, p. 261) and
20
Finance Theories Taxonomy
21
Table 4
Finance Theories Taxonomy: Theories of Financial Behavior
Theory
General description
Current examples of the theory
REMM Theory of
Current theory proposed by Meckling
Human Behavior
(1976) addresses the concept of “man” individuals who believe that
addressed by Brunner and Meckling
(Resourceful, Evaluative,
as unit of analysis in economics. It
(1977) and explained from the REMM
Maximizing Model)
explains man’s behaviors as a result of regulatory mechanism that
perspective as the result of corrupted
interactions with value systems and
government agencies rather than private
constraints” (Brunner & Meckling,
1977).
Most economists are REMM
Other attributes
price system is a self-
responds to needs and wants.
Trade-off in the costs of
leverage to avoid the costs of
REMM individuals are able to make
bankruptcy is an example of a
trade-offs to overcome a constraint,
REMM action (Brounen et al,
and therefore theoretically have “no
2004)
needs”, they have wants and desires
Corruption in financial markets is
firms.
Limitations of the theory:
REMM does not describe behavior of
particular individuals and might appear
too biased towards the role of
government agencies as controlling
Finance Theories Taxonomy
Theory
General description
Current examples of the theory
22
Other attributes
which help them focus on alternatives,
entities of corporate governance (Jensen
substitutes and costs and reduce their
& Meckling, 2001)
exposure to hidden agendas of
politicians or media (Brunner &
Meckling, 1977)
In general markets are always in
equilibrium because REMM
individuals adapt to their opportunity
set and make demand and supply
better off, by balancing cost/benefit
(Jensen & Meckling, 2001)
Finance Theories Taxonomy
23
Table 5
Finance Theories Taxonomy: Theory of International Finances
Theory
General description
Current examples of the theory
Other attributes
Financial liberalization
Current theory originated in the
The application of the
theory of IMF
separate work of McKinnon (1973)
liberalization theory resulted in strong classical assumptions about the
and Shaw (1973). The hypothesis
chaos and crises in developing
role of the interest rate. Shaw (1973)
supporting this theory proposed that
countries. In 1989
considered interest rates as a signal of
financial development and economic
Venezuela’s banking system
opportunities of investments, and
growth were strongly attached. The
broke and 60% of their assets
therefore an increase in economic
more liberalization of financial
were lost.
development. For McKinnon (1973)
systems, the more growth in economic
development. Arestis, Nissanke &
Stein (2005).
The liberalization theory was applied
In Mexico, in the late 90s
government intervention to
solve financial crisis
represented costs of 17% of the
Liberalization theory was based on
high interest rates would increase
savings flows and decrease any excess
of demands (Arestis, Nissanke & Stein,
p. 247).
Finance Theories Taxonomy
Theory
General description
during the 90s in developing countries
based on the idea that financial
institutions would benefit from foreign
capital inflows and competition
among banks and financial institutions
would foster efficiency (Glen &
Singh, 2005); however the inflow
increased the instability of these
Current examples of the theory
Gross domestic product.
Sahoo, Geethanjali and
Kmaiah (2001) studied real
savings and real GDP statistics
24
Other attributes
Flaws of the liberalization model
resided in forgetting that markets are not
sophisticated and that markets are
imperfect (Arestis et al, p. 249)
from 1950-1999 and found that
the relationship was growth-tosavings and not savings-togrowth.
countries (Shaw, 1973).
Institutional-centric
Current theory proposed by Arestis,
Empirical studies have found
A banking system that connects
theory of finances
Nissanke and Stein, 2005 as an
that in reality the transition of
investment and production in a
alternative to the flawed financial
economies to an institutional
symmetric manner, with common
liberalization theory that increased the
centered model is not
guidelines will attract investment and
instability of developing countries
happening, instead takeovers
accumulation (Glen and Sing, 2005).
Finance Theories Taxonomy
Theory
General description
during the 90s.
Based on the theory of imperfect
markets, it acknowledges the existence
Current examples of the theory
An integration of financial supervision
are common (Arestis et al,
was proposed by Demaestri and
2005).
Guerrero (2003) and theoretically
The study by Demaestri and
and formal institutions, which
Guerrero (2003) show
efficiency is the engine of
empirical evidence that
development (Arestis et al, 2005;
financial regulation overcome
Dornbusch & Reynoso, 2003)
issues of moral hazard,
capacities and organizations” are five
institutions of any financial system
(Arestis et al, 2005, p. 257) who risks
have to be socialized.
Other attributes
by foreign commercial banks
of imperfect information and informal
“Norms, incentives, regulations,
25
financial conglomerates,
transparency and
accountability (p. 22)
suggests that effectiveness and efficacy
are achieved when regulatory
institutions are integrated in one.
Finance Theories Taxonomy
26
References
Abate, Grant, & Stewart III (2004). The EVA Style of investing, 30(4), 61-72. Retrieved July 19
2007 from EBSCOHost database
Anderson, Ch. & Garcia-Feijoo, L. (2006). Empirical evidence on capital investment, growth
options, and security returns. The Journal of Fianance, 61(1), 171-194. Retrieved July
17, 2007 from EBSCOhost database
Ball, R. (2001). The theory of stock market efficiency: accomplishments and limitations. In
Chew, D. H. (Ed.). (2001) The New Corporate Finance: Where Theory Meets Practice, p.
20-33. New York: Irwin
Bancel, F. & Mittoo, U. (2004). Cross-country determinants of capital structure choice: A survey
of European firms. Financial Management (2000), 33(4), 103-32. Retrieved July 21,
2007 from EBSCOHost database
Blynski, L. & Faseruk, A. (2006). Comparison of the effectiveness of option price forecasting:
Black-Scholes vs. simple and hybrid neural networks. Journal of Financial Management
and Analysis, 19(2), 46-58. Retrieved July 17, 2007 from EBSCOhost database
Brounen, D., De Jong, & Koedijk, K. (2004). Corporate finance in Europe: Confronting theory
and practice. Financial management (2000), 33(4), 71-101. Retrieved July 13 2007 from
EBSCOHost database
Brown, S. (1978). Earning changes, stock prices, and market efficiency. The Journal of Finance,
33(1), 17-39. Retrieved July 13, 2007 from EBSCOHost database
Finance Theories Taxonomy
27
Brunner, K. & Meckling, W. (1977). The perception of man and the conception of government.
Journal of Money, Credit and Banking, 9(1), 70-85. Retrieved July 17, 2007 from
EBSCOHost database
Chen, Sh. & Dodd, J. (2002). Market efficiency, CAPM, and value-relevance of earnings and
EVA: A reply to the comment by professor Paulo. Journal of Managerial Issues, 14(4),
507-512. Retrieved July 14, 2007 from EBSCOhost database
Chew, D. H. (2001). Financial innovation in the 1980s and 1990s. In Chew, D. H. (Ed.). (2001)
The New Corporate Finance: Where Theory Meets Practice, p. xiii-xxii. New York:
Irwin
DeMaestri, E. & Guerrero, F. (2003). The Rationale for integrating financial supervision in Latin
America and the Caribbean. Inter-American Development Bank, Sustainable
Development Department. Technical Papers Series, IMF-135, IFM Publications,
Washington, DC.
Dogan, E. & Smyth, R. (2002). Board remuneration, company performance, and ownership
concentration. Evidence from publicly listed Malaysian companies. Asean Economic
Bulletin, 19(3), 319-347. Retrieved July 13, 2007 from EBSCOhost database
Fama, E. & French, K. (1996). The CAPM is wanted, dead or alive. The Journal of Finance,
51(5), P. 1947-1958. Retrieved July 16, 2007 from EBSCOHost database
Glen, J. & Singh, A. (2005). Corporate governance, competition and finance: Rethinking lessons
from the Asian crisis. Eastern Economic Journal, 31 (2), 219-243. Retrieved July 13,
2007 from EBSCOhost database
Gonzalez, M. (2006). ¿Cuánto se paga por el desempeño? El EVA y la remuneración de los
gerentes. Debates IESA, 11(2), 58-60. Retireved July 17, 2007 from EBSCOhost database
Finance Theories Taxonomy
28
Hatfield, G. (2002). R&D in an EVA world. Research Technology Management, 45(1), 41-47.
Retrieved July 17, 2007 from EBSCOhost database
Jensen, M. & Meckling, W. (2001). The nature of man. In Chew, D. H. (Ed.). (2001) The New
Corporate Finance: Where Theory Meets Practice. p. 4-19. New York: Irwin
Jensen, M. C. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers.
American Economic Review, 76(2), p. 323- 330. Retrieved July 14, 2007 from
EBSCOHost database.
Madhavan, A. (2002). Market microstructure: A practitioner’s guide. Financial Analysts
Journal, 58(5), 28-45. Retrieved July 17, 2007 from EBSCOhost.
Merton, R. (2003). Thoughts on the future: theory and practice in investment management.
Financial Analysts Journal, 59(1), 17-23. Retrieved July 13, 2007 from ProQuest
database
Merton, R. (1988). Applications of option-pricing theory: Twenty five years later. American
Economic Review, 88(3), 323-349. Retrieved July 18 2007 from EBSCOHost database
Miller, M. (2001). The Modgliani-Miller propostions after thirty years. In Chew, D. H. (Ed.).
(2001) The New Corporate Finance: Where Theory Meets Practice, p. 35-50. New York:
Irwin
Modigliani, F. & Miller, M. (1958). The cost of capital, corporation finance, and the theory of
investment. American Economic Review, 48, 655-669. Retrieved July 14, 2007 from
EBSCOHost database
Myers, S. (2001). Finance theory and financial strategy. . In Chew, D. H. (Ed.). (2001). The new
corporate finance: Where theory meets practice. p. 96-106. New York: Irwin
Finance Theories Taxonomy
29
Shrieves, R., & Wachowicz, J. (2001). Free cash flow (FCF), Economic value added (EVA), and
Net present value (NPV): A reconciliation of variation of discounted cash-flow (DCF)
valuation. Engineering Economist, 46 (1), 33-53. Retrieved July 16 2007 from
EBSCOHost database
Stein, H. & Rosefielde, S. (2005). Introduction to issues in finance, corporate control, and
growth: Lessons from developing and transitional economies. Economic Journal, 31 (2),
210-217. Retrieved July 13, 2007 from EBSCOhost database
Stewart, B. (2001). Market Myths. In Chew, D. H. (Ed.). (2001) The New Corporate Finance:
Where Theory Meets Practice, p. 35-50. New York: Irwin
Versluis, C. & Hillegers, T. (2006). The impact of portfolio re-financing on Black-Scholes call
option valuation. Applied Financial Economics Letters, 2, 261-263. Retrieved July 17,
2007 from EBSCOhost database
.