The authors evaluate the hypothesis that the rise in the cost of capital during the 1980s helped stimulate the surge in corporate takeovers. They analyze the effect that changes in tax laws and in the volume of government debt have had on corporate financial decisions. The authors examine how recent financial innovations have blurred the distinction between debt and equity finance.
John B. Shoven is the Charles R. Schwab Professor of Economics at Stanford University. Joel Waldfogel is assistant professor of economics at Stanford University.