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https://hdl.handle.net/2142/71368
Description
Title
Unanticipated Inflation and the Value of the Firm
Author(s)
Bernard, Victor Lewis
Issue Date
1982
Department of Study
Accountancy
Discipline
Accountancy
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Finance
Abstract
The purpose of this dissertation is to develop and test a model which could be useful in predicting the reactions of the values of individual firms to unanticipated inflation.
In conformity with much prior research, the model incorporates the effects of wealth redistribution due to the revaluation of fixed-dollar claims, including debt and depreciation tax shields. However, in contrast to prior research and in contradiction to the classical notion of the neutrality of money, the model predicts that there are persistent differences in the way inflation affects the profitability of operations of different firms.
The model is capable of explaining a significant portion of the cross-sectional dispersion in market returns which can be attributed to inflation. The evidence strongly supports the existence of large and somewhat stable cross-sectional differences in the impact of inflation upon cash flows from operations. Such differences appear substantially more important than the revaluation of debt and tax shields for purposes of explaining the redistribution of corporate wealth caused by inflation.
While the research is conducted at the level of the individual firm, the empirical model also provides insights about theories offered to explain the negative impact of inflation upon aggregate stock prices.
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