Incomplete Contract Perspective, Corporate Control Over The Configuration

Modern corporate finance theory is based on contract known MM Theorem (Modigliani-Miller1958), but the MM Theorem is very fragile assumptions and projects (or business) does not matter of financing is clearly not realistic conclusions. Economists have consideration of tax,incentive problems and control rightes in the MM theorem.Based on this theory, we built a control allocation model contains reputation by considering the reputation incentives of entrepreneurs. Because the entrepreneurial capacity is private information, entrepreneurs need to consider not only the private benefits, but also to consider their own reputation in a dynamic environment, reputation gained early in the game will be late to result in higher income entrepreneurs, so entrepreneurs early in the game may be in order to establish their own reputation at the expense of short-term gains choose the socially optimal effort level.In a simple framework for two dynamic game, we proved the existing control configuration model's basic conclusion is established in a static environment, but in a dynamic environment, entrepreneurs consider their impact in advance to bring the reputation, then entrepreneur control, investor control and condition control of these three companies control arrangement may be the social optimal under certain conditions. In the theoretical conclusion, we use the information of 66 companies from 2006 to 2009 tally of Chinese companies credit on listed to do the empirical analysis, that the reputation of corporate control rights have an important impact. Based on the theoretical and empirical research,we provide policy recommendations to the reputation mechanism on the construction of China's entrepreneurs and optimization.