James E. Hodder

Some Aspects of Japanese Corporate Finance

In this paper, we attempt to blend economic theory with an understanding of the historical context and regulation of Japanese financial markets, particularly during the 1950s and 1960s. The historical and regulatory context is critical since it represents the framework within which the economic forces operated. That is, we are interested in examining how a particular structure, characterized by controlled interest rates, segmentation of markets and functions, and limited entry, gave rise in understandable ways to distinctive corporate financial practices.

Multinational Capital Structure and Financial Flexibility

We address multinational capital structure decisions when firms have varying degrees of financial flexibility for shifting income and/or tax shields between subsidiaries. We find: a) Firms can use leverage to dramatically reduce negative valuation effects from operating in a high-tax country. b) Financial flexibility is a key determinant of optimal capital structure, acting as both a substitute and a complement for leverage. c) Multinational firms derive a synergistic effect from financial flexibility which can enhance their value beyond that for a single-country firm from a low-tax jurisdiction. d) Optimal Capital structure typically differs substantially across subsidiaries, with each having positions in multiple currencies.

Valuing flexibility: an impulse control framework

This paper presents a general framework for modeling and evaluating investments which involve flexibility to switch between alternative states of operation (for example, different sets of production inputs and outputs). The model employs a contingent claims pricing approach and encompasses previous real option models as special cases. We discuss practical solution techniques for the valuation problem under different assumptions regarding the cost and frequency of switching.

Pricing Models with Transaction Fees

We discuss existing and new results for mathematical finance models with transaction costs, namely models of portfolio management and international asset pricing in the presence of political risk. The main analysis comes from the theories of singular stochastic control and viscosity solutions for first and second order nonlinear partial differential equations.