Stockholder Unanimity in Making Production and Financial Decisions

24 Pages Posted: 4 Jul 2004  

Sanford J. Grossman

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: December 1980

Abstract

We show that "spanning" does not imply stockholder unanimity if there is trading in the shares of firms. Each basis vector of the space spanned by all firms' output vectors can be treated like a composite commodity. If, in addition to spanning, firms act as price takers with respect to prices of composite commodities, then there is unanimity. We analyze the spanning assumption for the vector space of contingent claims generated by firms' choices of debt-equity ratios. We show that there is a strong relationship between the Modigliani-Miller theorem, spanning, and the existence of a complete set of markets.

Suggested Citation

Grossman, Sanford J. and Stiglitz, Joseph E., Stockholder Unanimity in Making Production and Financial Decisions (December 1980). NBER Working Paper No. R0122. Available at SSRN: https://ssrn.com/abstract=228053

Sanford J. Grossman (Contact Author)

National Bureau of Economic Research (NBER)

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University of Pennsylvania - Finance Department ( email )

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Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

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