Outside Equity Financing / Stewart C. Myers.

Format:

Book

Author/Creator:

Myers, Stewart C.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6561.

NBER working paper series no. w6561

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Summary:

This paper explores the necessary conditions for outside equity financing when insiders, that is managers or entrepreneurs, are self-interested and cash flows are not verifiable. Two control mechanisms are contrasted: a partnership,' in which outside investors can commit assets for a specified period, and a corporation,' in which assets are committed for an indefinite period but insiders can be ejected at any time. The paper also shows how going public to reduce outsiders' power can be efficient if it preserves appropriate incentives for insiders. The concluding section explains how the difficulty of verifying the act of investment leads to monitoring costs and insiders' pursuit of private benefits of control.

Notes:

Print version record

May 1998.