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| Author: | Myers, S. |
| Title: | Outside equity |
| Journal: | Journal of Finance
2000 : JUN, VOL. 55:3, p. 1005-1038 |
| Index terms: | FINANCE EQUITY CAPITAL INVESTORS |
| Language: | eng |
| Abstract: | Equity financing is modeled when cash flows and asset values are not verifiable. Investors have enforceable property rights to the firm's assets, but cannot prevent insiders (manager or entrepreneurs) from capturing cash flow. Insiders must co-invest and pay in each period a dividend sufficient to ensure outside investors' participation for at least one more period. Intervention by the investors must be limited by an agreement with insiders or by costs of collective action. Basic models are extended to show why firms go public and why agency costs necessarily arise when the act of investment is not immediately verifiable. |
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