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Capital Rationing and Market Discount Rates: Some Common Fallacies

Capital Rationing and Market Discount Rates: Some Common Fallacies Arguments proposing the use of market discount rates for optimal investment criteria under conditions of “capital rationing” are examined. Several recent analyses assume one side of the capital market, either firms or individual investors, is subject to capital rationing while the other side is not. It is argued here that all market participants face perfect market opportunities or that none do. Several recent “solutions” are shown either to be consistent with the perfectly competitive market solution in which the familiar present value criterion is appropriate, or else to be fallacious. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Australian Journal of Management SAGE

Capital Rationing and Market Discount Rates: Some Common Fallacies

Finn, Frank J.
Australian Journal of Management , Volume 1 (2): 13 – Oct 1, 1976
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Publisher
SAGE
Copyright
Copyright © by SAGE Publications
ISSN
0312-8962
eISSN
1327-2020
DOI
10.1177/031289627600100203
Publisher site
See Article on Publisher Site

Abstract

Arguments proposing the use of market discount rates for optimal investment criteria under conditions of “capital rationing” are examined. Several recent analyses assume one side of the capital market, either firms or individual investors, is subject to capital rationing while the other side is not. It is argued here that all market participants face perfect market opportunities or that none do. Several recent “solutions” are shown either to be consistent with the perfectly competitive market solution in which the familiar present value criterion is appropriate, or else to be fallacious.

Journal

Australian Journal of Management – SAGE

Published: Oct 1, 1976

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