Thispaper investigates the circumstances under which a firm will be forced into bankruptcy. The model developed can be viewed as part of a largerframework which would be necessary to address the question of optimalfinancial policy in a world of taxation, bankruptcy costs, investment and depreciation, uncertainty, etc. The model focuses on the conflicts of interest among various claimants to the assets and income flows of the firm (the stockholders, bondholders, and bank lenders). We derive conditions under which the necessary funds for continuation will not be forthcoming and illustrate the importance of the liquidity of the assets and the maturity structure of the debt in staving off bankruptcy. Several examples highlight the major conclusions of the paper. The conditions for bankruptcy, which have some intuitive appeal, are more complex than those appearing in the previous literature. The latter part of the paper considers merger with a healthy company as an alternative to bankruptcy. We show that the tax system has an important effect on the choice between merger and bankruptcy. This work was supported by the Alfred P. Sloan Foundation. We would like to thank Alvin Kievorick and two anonymous referees fortheir helpful comments onan earlierversion ofthis paper. 1 Most significantly, perhaps, Modigliani and Miller (1958). 437 '~You can think of them as many small individual investors.

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Economists have long been puzzled by why firms pay dividends when alternative methods of rewarding shareholders and financiers exist which involve less taxes. This paper will highlight the fact that firms can distribute cash to equity holders in ways more lightly taxed than dividends. The two methods we examine are share repurchase programs and cash-financed mergers and acquisitions. So why should cash distributions from firms to shareholders ever take the form of dividends? This paper first provides evidence on the explosive growth in dividend cash payments, and then discusses how this evidence should affect theories about corporate finance.

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Link to this article: http://journals.cambridge.org/abstract_S1474747213000309How to cite this article: JOHN B. SHOVEN and SITA NATARAJ SLAVOV (2014). Does it pay to delay social security? . AbstractSocial Security benefits may be commenced at any time between ages 62 and 70. As individuals who claim later can, on average, expect to receive benefits for a shorter period, an actuarial adjustment is made to the monthly benefit to reflect the age at which benefits are claimed. We investigate the actuarial fairness of that adjustment in light of recent improvements in mortality and historically low interest rates. We show that delaying is actuarially advantageous for a large number of people, even for individuals with mortality rates that are twice the average. At real interest rates closer to their historical average, singles with mortality that is substantially greater than average do not benefit from delay, although primary earners with high mortality can still improve the present value of the household's benefits through delay. We also investigate the extent to which the actuarial advantage of delay has grown since the early 1960s, when the choice of when to claim first became available, and we decompose this growth into three effects : (1) the effect of changes in Social Security's rules, (2) the effect of changes in the real interest rate, and (3) the effect of changes in life expectancy. Finally, we quantify the extent to which the gains from delay can be expected to increase in the future as a result of mortality improvements.