Presidential Address: The Corporation in Finance

Raghuram G. Rajan

150 citations0/0 files storedThe Journal of Finance

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Corporate Finance and Governance Financial Markets and Investment Strategies Private Equity and Venture Capital

Abstract

ABSTRACT To produce significant net present value, an entrepreneur has to differentiate her enterprise from the ordinary. To take collaborators with her, she needs to have substantial ownership, and thus financing. But it is hard to raise finance against differentiated assets. So an entrepreneur has to commit to undertake a second transformation, standardization, that will make the human capital in the firm, including her own, replaceable, so that outside financiers obtain control rights that will allow them to be repaid. A vibrant stock market helps the entrepreneur commit to these two transformations. The nature of firms and financing are intimately linked.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1937The Nature of the Firm 1983Separation of Ownership and Control 1984Corporate financing and investment decisions when firms have information that investors do not have 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1997A Survey of Corporate Governance 1987The Economic Institutions of Capitalism 1958The Cost of Capital, Corporation Finance and the Theory of Investment

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