30 Pages Posted: 24 Oct 2000
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.
Keywords: organizational forms, investment, proprietorships, partnerships, closed corporations, market value rule, residual claims, open corporations
Suggested Citation: Suggested Citation
Fama, Eugene F. and Jensen, Michael C., Organizational Forms and Investment Decisions. A THEORY OF THE FIRM: GOVERNANCE, RESIDUAL CLAIMS AND ORGANIZATIONAL FORMS, Harvard University Press, December 2000, (Book). Available at SSRN: https://ssrn.com/abstract=173458 or http://dx.doi.org/10.2139/ssrn.173458