9780691125565

The Theory of Corporate Finance

by
  • ISBN13:

    9780691125565

  • ISBN10:

    0691125562

  • Format: Hardcover
  • Copyright: 2005-12-12
  • Publisher: Princeton Univ Pr

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Summary

The past twenty years have seen great theoretical and empirical advances in the field of corporate finance. Whereas once the subject addressed mainly the financing of corporations--equity, debt, and valuation--today it also embraces crucial issues of governance, liquidity, risk management, relationships between banks and corporations, and the macroeconomic impact of corporations. However, this progress has left in its wake a jumbled array of concepts and models that students are often hard put to make sense of. Here, one of the world's leading economists offers a lucid, unified, and comprehensive introduction to modern corporate finance theory. Jean Tirole builds his landmark book around a single model, using an incentive or contract theory approach. Filling a major gap in the field,The Theory of Corporate Financeis an indispensable resource for graduate and advanced undergraduate students as well as researchers of corporate finance, industrial organization, political economy, development, and macroeconomics. Tirole conveys the organizing principles that structure the analysis of today's key management and public policy issues, such as the reform of corporate governance and auditing; the role of private equity, financial markets, and takeovers; the efficient determination of leverage, dividends, liquidity, and risk management; and the design of managerial incentive packages. He weaves empirical studies into the book's theoretical analysis. And he places the corporation in its broader environment, both microeconomic and macroeconomic, and examines the two-way interaction between the corporate environment and institutions. Setting a new milestone in the field,The Theory of Corporate Financewill be the authoritative text for years to come.

Table of Contents

Acknowledgements xi
Introduction 1(1)
Overview of the Field and Coverage of the Book
1(5)
Approach
6(1)
Prerequisites and Further Reading
7(1)
Some Important Omissions
7(3)
References
10(3)
I An Economic Overview of Corporate Institutions
13(98)
Corporate Governance
15(60)
Introduction: The Separation of Ownership and Control
15(5)
Managerial Incentives: An Overview
20(9)
The Board of Directors
29(7)
Investor Activism
36(7)
Takeovers and Leveraged Buyouts
43(8)
Debt as a Governance Mechanism
51(2)
International Comparisons of the Policy Environment
53(3)
Shareholder Value or Stakeholder Society?
56(6)
Supplementary Section
The Stakeholder Society: Incentives and Control Issues
62(3)
Appendixes
Cadbury Report
65(2)
Notes to Tables
67(8)
References
68(7)
Corporate Financing: Some Stylized Facts
75(36)
Introduction
75(2)
Modigliani-Miller and the Financial Structure Puzzle
77(3)
Debt Instruments
80(10)
Equity Instruments
90(5)
Financing Patterns
95(7)
Conclusion
102(1)
Appendixes
The Five Cs of Credit Analysis
103(1)
Loan Covenants
103(8)
References
106(5)
II Corporate Financing and Agency Costs
111(220)
Outside Financing Capacity
113(44)
Introduction
113(2)
The Role of Net Worth: A Simple Model of Credit Rationing
115(10)
Debt Overhang
125(2)
Borrowing Capacity: The Equity Multiplier
127(3)
Supplementary Sections
Related Models of Credit Rationing: Inside Equity and Outside Debt
130(2)
Verifiable Income
132(6)
Semiverifiable Income
138(3)
Nonverifiable Income
141(3)
Exercises
144(13)
References
154(3)
Some Determinants of Borrowing Capacity
157(42)
Introduction: The Quest for Pledgeable Income
157(1)
Boosting the Ability to Borrow: Diversification and Its Limits
158(6)
Boosting the Ability to Borrow: The Costs and Benefits of Collateralization
164(7)
The Liquidity-Accountability Tradeoff
171(6)
Restraining the Ability to Borrow: Inalienability of Human Capital
177(3)
Supplementary Sections
Group Lending and Microfinance
180(3)
Sequential Projects
183(5)
Exercises
188(11)
References
195(4)
Liquidity and Risk Management, Free Cash Flow, and Long-Term Finance
199(38)
Introduction
199(2)
The Maturity of Liabilities
201(6)
The Liquidity-Scale Tradeoff
207(6)
Corporate Risk Management
213(7)
Endogenous Liquidity Needs, the Sensitivity of Investment to Cash Flow, and the Soft Budget Constraint
220(5)
Free Cash Flow
225(4)
Exercises
229(8)
References
235(2)
Corporate Financing under Asymmetric Information
237(46)
Introduction
237(4)
Implications of the Lemons Problem and of Market Breakdown
241(8)
Dissipative Signals
249(15)
Supplementary Section
Contract Design by an Informed Party: An Introduction
264(5)
Appendixes
Optimal Contracting in the Privately-Known-Prospects Model
269(1)
The Debt Bias with a Continuum of Possible Incomes
270(1)
Signaling through Costly Collateral
271(1)
Short Maturities as a Signaling Device
271(1)
Formal Analysis of the Underpricing Problem
272(1)
Exercises
273(10)
References
280(3)
Topics: Product Markets and Earnings Manipulations
283(48)
Corporate Finance and Product Markets
283(16)
Creative Accounting and Other Earnings Manipulations
299(19)
Supplementary Section
Brander and Lewis's Cournot Analysis
318(4)
Exercises
322(9)
References
327(4)
III Exit and Voice: Passive and Active Monitoring
331(54)
Investors of Passage: Entry, Exit, and Speculation
333(22)
General Introduction to Monitoring in Corporate Finance
333(5)
Performance Measurement and the Value of Speculative Information
338(7)
Market Monitoring
345(5)
Monitoring on the Debt Side: Liquidity-Draining versus Liquidity-Neutral Runs
350(3)
Exercises
353(2)
References
353(2)
Lending Relationships and Investor Activism
355(30)
Introduction
355(1)
Basics of Investor Activism
356(10)
The Emergence of Share Concentration
366(3)
Learning by Lending
369(5)
Liquidity Needs of Large Investors and Short-Termism
374(5)
Exercises
379(6)
References
382(3)
IV Security Design: The Control Right View
385(60)
Control Rights and Corporate Governance
387(38)
Introduction
387(2)
Pledgeable Income and the Allocation of Control Rights between Insiders and Outsiders
389(9)
Corporate Governance and Real Control
398(6)
Allocation of Control Rights among Securityholders
404(7)
Supplementary Sections
Internal Capital Markets
411(4)
Active Monitoring and Initiative
415(3)
Exercises
418(7)
References
422(3)
Takeovers
425(20)
Introduction
425(1)
The Pure Theory of Takeovers: A Framework
425(1)
Extracting the Raider's Surplus: Takeover Defenses as Monopoly Pricing
426(3)
Takeovers and Managerial Incentives
429(2)
Positive Theory of Takeovers: Single-Bidder Case
431(7)
Value-Decreasing Raider and the One-Share--One-Vote Result
438(2)
Positive Theory of Takeovers: Multiple Bidders
440(1)
Managerial Resistance
441(1)
Exercise
441(4)
References
442(3)
V Security Design: The Demand Side View
445(24)
Consumer Liquidity Demand
447(22)
Introduction
447(1)
Consumer Liquidity Demand: The Diamond-Dybvig Model and the Term Structure of Interest Rates
447(7)
Runs
454(3)
Heterogenous Consumer Horizons and the Diversity of Securities
457(4)
Supplementary Sections
Aggregate Uncertainty and Risk Sharing
461(2)
Private Signals and Uniqueness in Bank Run Models
463(3)
Exercises
466(3)
References
467(2)
VI Macroeconomic Implications and the Political Economy of Corporate Finance
469(100)
Credit Rationing and Economic Activity
471(26)
Introduction
471(1)
Capital Squeezes and Economic Activity: The Balance-Sheet Channel
471(7)
Loanable Funds and the Credit Crunch: The Lending Channel
478(6)
Dynamic Complementarities: Net Worth Effects, Poverty Traps, and the Financial Accelerator
484(5)
Dynamic Substitutabilities: The Deflationary Impact of Past Investment
489(4)
Exercises
493(4)
References
495(2)
Mergers and Acquisitions, and the Equilibrium Determination of Asset Values
497(20)
Introduction
497(2)
Valuing Specialized Assets
499(10)
General Equilibrium Determination of Asset Values, Borrowing Capacities, and Economic Activity: The Kiyotaki-Moore Model
509(6)
Exercises
515(2)
References
516(1)
Aggregate Liquidity Shortages and Liquidity Asset Pricing
517(18)
Introduction
517(1)
Moving Wealth across States of Nature: When Is Inside Liquidity Sufficient?
518(5)
Aggregate Liquidity Shortages and Liquidity Asset Pricing
523(4)
Moving Wealth across Time: The Case of the Corporate Sector as a Net Lender
527(3)
Exercises
530(5)
References
532(3)
Institutions, Public Policy, and the Political Economy of Finance
535(34)
Introduction
535(2)
Contracting Institutions
537(7)
Property Rights Institutions
544(7)
Political Alliances
551(4)
Supplementary Sections
Contracting Institutions, Financial Structure, and Attitudes toward Reform
555(5)
Property Rights Institutions: Are Privately Optimal Maturity Structures Socially Optimal?
560(3)
Exercises
563(6)
References
567(2)
VII Answers to Selected Exercises, and Review Problems
569(72)
Answers to Selected Exercises
571(54)
Review Problems
625(8)
Answers to Selected Review Problems
633(8)
Index 641

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