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Financial Contracting

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  • Oliver Hart

Abstract

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.

Suggested Citation

  • Oliver Hart, 2001. "Financial Contracting," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1079-1100, December.
    • Handle: RePEc:aea:jeclit:v:39:y:2001:i:4:p:1079-1100
    Note: DOI: 10.1257/jel.39.4.1079
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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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