Corporate Financial Structure, Incentives and Optimal Contracting (Reprint 049)

Franklin Allen and Andrew Winton

Rodney L. White Center for Financial Research Working Papers from Wharton School Rodney L. White Center for Financial Research

Abstract: The firm can be regarded as consisting of several groups of investors and managers whose interests are regulated by the contracts between them. This survey covers the literature that looks at the nature of optimal financial contracts in the face of various asymmetries of information, control and type. Five areas are considered: (i) costly state verification and agency; (ii) adverse selection; (iii) the allocation of control rights among investors and the design of ownership structure; (iv) the allocation of risk and (v) acquisition of information.

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