Discussion of Patrick Bolton’s “Corporate Finance, Incomplete Contracts, and Corporate Control”

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Abstract

The seminal work of Grossman and Hart (1986) changed the landscape of corporate finance by giving impetus to an extensive theoretical literature that analyzes financial decisions from an incomplete contracting perspective. In particular, the incomplete contracts approach has been successful in developing theories that motivate the use of debt contracts. The paper by Patrick Bolton (chapter 12)—one of the most influential contributors to this literature—offers an in-depth review and assessment of the incomplete contracts approach to financial contracting.

When Oliver Hart wrote his 2001 Journal of Economic Literature survey “Financial Contracting,” the empirical evidence was just beginning to accumulate. In the past few years the field has benefited from the availability of data on syndicated loans, commercial real estate loans, and asset-backed securities, which have enabled microlevel studies of financial contracting. In this short discussion I review the empirical evidence on the role that collateral plays in financial contracts.
Original languageEnglish (US)
Title of host publicationThe Impact of Incomplete Contracts on Economics
EditorsPhilippe Aghion, Mathias Dewatripont, Patrick Legros, Luigi Zingales
PublisherOxford University Press
Pages138-143
Number of pages6
Edition1st
ISBN (Print)9780199826223
DOIs
StatePublished - 2016

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