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.
Conine, Thomas; Jensen, Oscar W.; and Tamarkin, Maurry, "On Optimal Production and the Market to Book Ratio Given Limited Shareholder Diversification" (1989). Business Faculty Publications. 3.
Conine, Thomas, Oscar W. Jensen, and Maurry Tamarkin. "On Optimal Production and the Market to Book Ratio Given Limited Shareholder Diversification." Management Science 35.8 (Aug 1989): 1004-1013.