TY  - JOUR
AU  - Myers,Stewart C.
TI  - Outside Equity Financing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6561
PY  - 1998
Y2  - May 1998
UR  - http://www.nber.org/papers/w6561
L1  - http://www.nber.org/papers/w6561.pdf
N1  - Author contact info:
Stewart C. Myers
Massachusetts Institute of Technology
Sloan School of Management
E62-620
77 Massachusetts Avenue
Cambridge, MA 02142
Tel: 617/253-6696
Fax: 617/258-6855
E-Mail: scmyers@mit.edu
AB  - This paper explores the necessary conditions for outside equity financing when insiders, that is managers or entrepreneurs, are self-interested and cash flows are not verifiable.  Two control mechanisms are contrasted: a partnership,' in which outside investors can commit assets for a specified period, and a  corporation,' in which assets are committed for an indefinite period but insiders can be ejected at any time.  The paper also shows how going public to reduce outsiders' power can be efficient if it preserves appropriate incentives for insiders.  The concluding section explains how the difficulty of verifying the act of investment leads to monitoring costs and insiders' pursuit of private benefits of control.
ER  -