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1. Introduction 1
1.1. Finance and business cycles: A selective overview of some recent
developments 1
1.2. Finance in a theory of the business cycle: An overview 4
1.3. What is ahead in this book 8
2. A theory of supply adjustment over the business cycle for debt and equity
economies 13
2.1. Introduction 13
2.2. Sharing rules and cooperative production 14
2.3. The operating and financing decisions of firms: Their impact on risk and
return sharing among bondholders and stockholders 25
2.4. Capital market signals, risk and return sharing among bondholders and
stockholders, and the business cycle 30
2.5. An alternative interpretation of the risk and return sharing theory of
supply adjustment over the business cycle 34
2.6. Summary and conclusions 37
3. From theory to empirical assessment: Some existing evidence and prob-
lems in testing the risk and return sharing model of supply adjustment
across countries 49
3.1. Introduction 49
3.2. Empirical predictions of the risk, return, and arbitrage theory of the
business cycle 50
3.3. The data: Some problems and issues in measuring the operating and
financing strategies of firms 53
3.4. Some existing empirical evidence on the risk, return, and arbitrage theory
of the business cycle 58
3.5. Flight to quality, financial accelerator, and risk and return sharing: Some
comparisons 65
3.6. Asset valuations: Some accounting problems in testing the risk, return,
and arbitrage theory of the business cycle 68
3.7. Summary and conclusions 73
4. Corporate finance, the stock market, and business cycles in Japan 81
4.1. Introduction 81
4.2. Data, data sources, and some empirical issues 87
4.3. The cyclical pattern of operating decisions of Japanese manufacturing
enterprises 89
4.4. The cyclical pattern of financing decisions of manufacturing industries in
Japan 95
4.5. Return sharing and the business cycle in Japan 108
4.6. Summary and conclusions 112
5. Corporate finance, the stock market, and business cycles in France,
Germany, and Italy 125
5.1. Introduction 125
5.2. Data, data sources, and some empirical issues 129
5.3. The cyclical pattern of operating decisions of French, German, and Italian
non-financial enterprises 133
5.4. The cyclical pattern of financing decisions of French, German, and Italian
non-financial enterprises 144
5.5. Return sharing and the business cycle in France, Germany, and Italy 158
5.6. Summary and conclusions 164
6. Corporate finance, the stock market, and business cycles in Canada and
the United Kingdom 179
6.1. Introduction 179
6.2. Data, data sources, and data problems 180
6.3. The cyclical pattern of operating decisions of Canadian and United
Kingdom non-financial enterprises 185
6.4. The cyclical pattern of financing decisions of non-financial enterprises in
Canada and the United Kingdom 193
6.5. Summary and conclusions 208
7. Corporate finance, the stock market, and business cycles in the United
States 217
7.1. Introduction 217
7.2. Data and data sources 220
7.3. The cyclical pattern of operating decisions of non-financial enterprises in
the United States 222
7.4. The cyclical pattern of financing decisions of non-financial enterprises in
the United States 227
7.5. Return sharing and the business cycle in the United States 243
7.6. Summary and conclusions 247
8. Some concluding observations on corporate finance, the stock market,
and business cycles in the G-7 countries 261
8.1. Risk, return, and arbitrage: A theory of cyclical supply adjustment for
debt and equity economies once again 261
8.2. Corporate finance, the stock market and business cycles: A summary and
additional evidence on cyclical supply adjustments in the G-7 countries 266
8.3. Portfolio decisions and financing decisions for financial enterprises over
the business cycle 282
8.4. Monetary policy in the risk, return, and arbitrage model of supply
adjustment over the business cycle 285
8.5. Some concluding thoughts and directions for future research 288
Library of Congress Subject Headings for this publication: Business cycles, Corporations Finance, Corporate governance