publication . Article . Part of book or chapter of book . 2013

Corporate Finance, Incomplete Contracts, and Corporate Control

Patrick Bolton;
Open Access
  • Published: 09 Oct 2013 Journal: Journal of Law, Economics, and Organization, volume 30, issue suppl_1, pages 64-64
Abstract
This essay in celebration of Grossman and Hart (GH) (Grossman, S., and H. Oliver. 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," 94 Journal of Political Economy 691–719.) discusses how the introduction of incomplete contracts has fundamentally changed economists’ perspectives on corporate finance and control. Before GH, the dominant theory in corporate finance was the tradeoff theory pitting the tax advantages of debt (relative to equity) against bankruptcy costs. After GH, this theory has been enriched by the introduction of control considerations and investor protection issues. This essay assesses how our understandi...
Subjects
free text keywords: Economics and Econometrics, Organizational Behavior and Human Resource Management, Law, Cost–benefit analysis, Bankruptcy costs, Financial economics, Investor protection, Grossman, Debt, media_common.quotation_subject, media_common, Microeconomics, Economics, Corporate finance, Equity (finance), Incomplete contracts
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