Organizational Forms and Investment Decisions
Eugene F. Fama
University of Chicago - Finance
Michael C. Jensen
Social Science Electronic Publishing (SSEP), Inc.; Harvard Business School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
A THEORY OF THE FIRM: GOVERNANCE, RESIDUAL CLAIMS AND ORGANIZATIONAL FORMS, Harvard University Press, December 2000, (Book)
This paper analyzes investment rules for various organizational forms that are distinguished by the characteristics of their residual claims. Different restrictions on residual claims lead to different decision rules. The analysis indicates that the investment decisions of open corporations, financial mutuals and nonprofits can be modeled by the value maximization rule. However, the decisions of proprietorships, partnerships, and closed corporations cannot in general be modeled by the market value rule.
Number of Pages in PDF File: 30
Keywords: organizational forms, investment, proprietorships, partnerships, closed corporations, market value rule, residual claims, open corporationsAccepted Paper Series
Date posted: October 24, 2000
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