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Journal of Economic Literature: Vol. 39 No. 4 (December 2001)

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Financial Contracting

Article Citation

Hart, Oliver. 2001. "Financial Contracting." Journal of Economic Literature, 39(4): 1079-1100.

DOI: 10.1257/jel.39.4.1079

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.

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Authors

Hart, Oliver (Harvard U and London School of Econ)

JEL Classifications

G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
M13: New Firms; Startups


Journal of Economic Literature


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