Corporate finance and the theory of the firm

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Research Paper (undergraduate) from the year 2003 in the subject Business economics - Investment and Finance, grade: 2, 0 (B), European Business School - International University Schloß Reichartshausen Oestrich-Winkel (Corporate Finance and Capital Markets), language: English, abstract: This book examines the links between corporate finance and the theory ofthe firm. As a basis for this analysis, theoretical foundations in corporate finance andthe theory of the firm are provided. Furthermore, current research on the theory of thefirm and corporate finance for the recently emerged type of firm of the human-capitalintensive firm is presented.The most significant part of the analysis is the evaluation of the interrelation betweencorporate finance and the theory of the firm using a 3x3 matrix. This matrix comparesthree important theoretical frameworks of the firm (the firm as a nexus of contracts, as acollection of growth options and as a collection of assets) with three major fields ofcorporate finance (capital structure, corporate governance and valuation). Thisassessment is done for the traditional asset-intensive industrial firm, one of two basictypes of firms in today's economy. For giving an additional insight into currentresearch, the recently emerged human-capital intensive firm is shortly described incomparison to the traditional asset-intensive firm, and implications for corporate financefor this new type of firm are explained.As a conclusion, three major results can be stated: firstly, the theory of the firm definitelyinfluences corporate finance for all described views of the firm, and it is thus animportant basis for corporate finance. This fact makes it necessary to consider the underlyingissue of the theory of the firm for each problem in corporate finance. Secondly, different views of the theory of the firm have different implications for corporate finance.For example, the appropriate valuation method depends on the considered viewof the firm. A third result being observed is that corporate finance and the theory of thefirm are in an ongoing change. An example of this is the emergence of human-capitalintensive firms within the last decade.