In Search of New Foundations


  • Luigi Zingales

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    • University of Chicago, NBER, and CEPR. Paper prepared for the 2000 AFA meeting in Boston. I benefited from the comments of Franklin Allen, Darin Clay, Francesca Cornelli, Eugene Fama, Mark Gormaise, Oliver Hart, Thomas Hellmann, Raghu Rajan, Jesus Santos, Paola Sapienza, and Andrei Shleifer.


In this paper I argue that corporate finance theory, empirical research, practical applications, and policy recommendations are deeply rooted in an underlying theory of the firm. I also argue that although the existing theories have delivered very important and useful insights, they seem to be quite ineffective in helping us cope with the new type of firms that is emerging. I outline the characteristics that a new theory of the firm should satisfy and how such a theory could change the way we do corporate finance, both theoretically and empirically.