Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
Harvard Institute of Economic Research Paper No. 1924; Harvard Law and Economics Discussion Paper No. 327
This paper discusses how economists' views of firms' financial structure decisions have evolved from treating firms' profitability as given; to acknowledging that managerial actions affect profitability; to recognizing that firm value depends on the allocation of decision or control rights. The paper argues that the decision or control rights approach is useful, even though it is at an early stage of development, and that the approach has some empirical content: it can throw light on the structure of venture capital contracts and the reasons for the diversity of claims.
Number of Pages in PDF File: 49
Keywords: Financial contracting, decision rights, control rights
JEL Classification: D2, G3, L2
Date posted: May 8, 2001