11-2-09 - Economics 448 Class Notes 11/2/09 FOR THE EXAM:...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 448 – Class Notes – 11/2/09 FOR THE EXAM: He will only ask you to come up with a contract that satisfies the participation and incentive constraints and the lowest variance in the payoffs (minimizes the risk) on the exam. Cleometrectics and QWERTY – path dependence What costs exist that don’t allow us to switch out of this path Jensen, Michael and William Meckling (1976) “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Modigliani-Miller theorem Does it matter if you raise money in the equity or debt market? If transaction costs are zero, it doesn’t matter how you structure the financing for the firm o It doesn’t matter if it’s debt or equity o It’s an irrelevance theorem But since you cannot have the necessary conditions for the theorem to be true, the theorem cannot be true in practice Jensen and Meckling Article: Arguments: o There are a lot of costs to using the equity markets to raise money Agency costs to raising money in the equity market o Debt market Costs to raising money in the debt market o Both are going to give managers bad incentives to act in particular ways What are the costs to raising money in the equity market/? Perks
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

11-2-09 - Economics 448 Class Notes 11/2/09 FOR THE EXAM:...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online