A theory of debt and equity: Diversity of securities and manager-shareholder congruence

Mathias Dewatripont, Jean Tirole

    Research output: Contribution to journalArticlepeer-review

    325 Scopus citations

    Abstract

    This paper shows how the optimal financial structure of a firm complements incentive schemes to discipline managers, and how the securities’ return streams determine the claim-holders’ incentives to intervene in management. The theory rationalizes (1) the multipUcity of securities, (2) the observed correlation between return streams and control rights of securities, and (3) the partial congruence between managerial and equity-holder preferences over policy choices and monetary rewards as well as the low level of interference of equity in management. The theory also offers new prospects for a reappraisal of the earlier corporate finance literature.

    Original languageEnglish (US)
    Pages (from-to)1027-1054
    Number of pages28
    JournalQuarterly Journal of Economics
    Volume109
    Issue number4
    DOIs
    StatePublished - Nov 1994

    ASJC Scopus subject areas

    • Economics and Econometrics

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