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Firms, contracts, and financial structure Oliver Hart
Publisher: OUP

For those interested in the economics of contracting: Oliver Hart, Firms, Contracts and Financial Structure (1995). This paper presents a model of the financial structure of private equity firms. Herbet Simon, "A Formal Theory of the Employment Relationship," Econometrica, July 1951. But if human capital is so important, elementary property rights economics tells us that workers, not capitalists, should control firms. Bond covenants exist to restrict these games that shareholders might play, but bond contracts cannot prevent all eventualities. In the model, the general First, the firm should be financed by a combination of fund capital raised before deals are encountered, and capital that is raised to finance a specific deal. Second, the fund investors' claim on fund cash flow is a combination of debt and levered equity, while the general partner receives a claim similar to the carry contracts received by real-world practitioners. This essay contributes to contact theory as it has been developed in economic analysis, particularly in the context of the firm. "This book, which synthesizes most of Oliver Hart's work since 1980, provides a clear introduction to the modern theory of the firm, and ultimately a very compelling answer to. An interesting development of the 1980s, however, was the John Graham and Campbell Harvey (2001) surveyed chief financial officers to gather information about their perspective on the determinants of their firms' financial structure and found support for both the trade-off theory and the pecking order view.