PAM_334_Fall_2008_Lecture_6 - PAM 3340 Lecture 6 Agenda:...

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Unformatted text preview: PAM 3340 Lecture 6 Agenda: Some terms Benefits of corporate form Limited liability Terms: A fully diversified portfolio Capital market or stock price efficiency Full pricing of corporate governance structures Stock prices as signals Equity versus debt Benefits of Corporate Form: Least-Cost Risk-Bearing Investor-owners provide the firm with capital and provide risk-bearing services The firm offers investors an expected return (but no guarantees) What price does the investor charge the firm for risk-bearing services? Benefits of Corporate Form: Least-Cost Risk-Bearing Tradability and divisibility of ownership allows owners to diversify (LL encourages diversification) Full diversification encourages owners to charge the least possible amount for risk-bearing services Benefits of Corporate Form: Scale and Complexity Transferable residual claims have numerous benefits:...
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PAM_334_Fall_2008_Lecture_6 - PAM 3340 Lecture 6 Agenda:...

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