Quotes from Firms, Contracts, and Financial Structure

By Oliver Hart (1995)

One share–one vote is optimal not so much because it gives shareholders the right incentives to take decisions, but rather because it forces someone who wants to obtain control of the company to acquire a share of the company’s dividend stream commensurate with this control#
Organization
Bankruptcy is a situation in which existing claims are inconsistent.#
Expectations
What is required for a theory of asset ownership is that there is some inefficiency in the economic relationship, which the allocation of residual control rights can influence… ownership matters since it determines the outcome if bargaining breaks down.#
Organization
To develop a theory of the firm, one must analyse a situation where the first-best cannot be guaranteed, i.e. where reputational forces are not strong enough to eliminate all problems of opportunism.#
Organization
Neoclassical theory is consistent with there being one huge firm in the world, with every existing firm (General Electric, Exxon, Unilever, British Petroleum, . . . ) being a division of this firm. It is also consistent with every plant and division of an existing firm becoming a separate and independent firm. To distinguish between these possibilities, it is necessary to introduce factors not present in the neoclassical story.#
Organization
One share–one vote protects shareholder property rights in the sense that it maximizes the chance that a control contest will be won by a management team that provides high value for shareholders, rather than high private benefits for itself.#
Organization
Power is a scarce resource that should never be wasted. One implication of the theory is that a merger between firms with highly complementary assets is value-enhancing, and a merger between firms with independent assets is value-reducing.#
Organization
Firms arise in situations where people cannot write good contracts and where the allocation of power or control is therefore important.#
Organization