A Theory of Corporate Scope and Financial Structure

David D Li and Shan Li

Journal of Finance, 1996, vol. 51, issue 2, 691-709

Abstract: The authors simultaneously address three basic issues regarding the corporation: the optimal scope of operation, the optimal financial structure, and the relationship between these two. The starting point is that financial structure serves as a bonding device on the managers' self-interest behavior. The effectiveness of this bonding depends on the distribution of the firm's future cash flow, which in turn depends on the firm's scope. The authors' theory also links the firm's investment decisions to its operation scope. As empirical implications, the theory reconciles the failure of the 1960s U.S. conglomerates with the success of the Japanese keiretsu. Copyright 1996 by American Finance Association.

Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (35)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-1082%2819960 ... O%3B2-M&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:51:y:1996:i:2:p:691-709

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().