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On Optimal Production and the Market to Book Ratio Given Limited Shareholder Diversification

Thomas E. Conine, Jr., Oscar W. Jensen and Maurry Tamarkin
Management Science
Vol. 35, No. 8 (Aug., 1989), pp. 1004-1013
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/2632152
Page Count: 10
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On Optimal Production and the Market to Book Ratio Given Limited Shareholder Diversification
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Abstract

Our purpose is to examine a firm's optimal output decision and valuation when its shareholders hold a limited number of risky assets. The primary theoretical result indicates that the market-to-book ratio is a function of the degree of shareholder diversification. Our theory suggests a negative relationship between a firm's market-to-book ratio and shareholder diversification.

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