Articles week 1 Flashcards
(5 cards)
Main problem adressed in Hart (1995)
The allocation of decision-making rights in firms due to incomplete contracts. Governance determines who gets to decide in case of unknown situations. (Usually to shareholders)
Why are contracts incomplete according to Hart?
Because it’s impossible to specify all future states and actions in advance.
What does corporate governance determine according to Hart?
Who has the control rights to make decisions when unforeseen circumstances arise.
What is the implication for control allocation in governance? (Hart, 1995)
Control should go to the party whose intentions and decisions most affect the firm’s value and aligned with the firm’s interests.
Resource Dependency Theory
Board members bring critical resources and connections
