1. Accounting Theory’s Economics Basis --A Framework
Part I: Corporate finance
Wu Jiangang

2. Contents
1. Economics of transaction: deal, price, market and organization 2. Economics of decentralized market: the invisible hand 3. Economics of centralized market: the theory of firm 4. Economics of Decentralized Automatic Organization (DAO): Automatic decentralized society built on peer to peer internet, blockchain, token and smart contract 5. Economics of corporate finance 6. Theories of corporate finance

3. 1. Economics of transaction: John R.Commons
Commons is the first economist who emphasizes the importance of transaction.
"...But the smallest unit of the institutional economists is a unit of activity — a transaction, with its participants. Transactions intervene between the labor of the classic economists and the pleasures of the hedonic economists, simply because it is society that controls access to the forces of nature, and transactions are, not the "exchange of commodities," but the alienation and acquisition, between individuals, of the rights of property and liberty created by society, which must therefore be negotiated between the parties concerned before labor can produce, or consumers can consume, or commodities be physically exchanged..." — "Institutional Economics" American Economic Review, vol. 21 (December 1931), pp. 648–657.

4. 1. Economics of transaction: Making a deal
Buyer VS Seller
By barter: can only support a very small scale of division of labor and market
By money: strongly promoted the scale of division of labor and market
Center bank
Monetary policy
Culture of Money

5. 1. Economics of transaction: cost
Cost of transaction
Before a transaction:
Searching cost: finding buyers or seller
Bargaining cost: cheating by adverse selection
Contract cost
In a transaction:
Execution of the contract: cheating by moral hazard
Measuring cost
Monitoring cost
Incentive cost
After a transaction: economic consequences
Externality
Reputation
Expectation

6. 1. Economics of transaction: theories triggered
Information economics
Property right theory 
Contract theory: incomplete contract
Game theory
Market theory:
Classic economics of price: from invisible hand to equilibrium theory
Decentralized market: Adam Smith
Centralized market
Organization theory
New institutional economics (NIE):
The most effective way to analyze human behavior

7. 2. Economics of decentralized market
Adam Smith
The Wealth of Nations
Chapter 1 of Book 1: Of the Division of Labor
The invisible hand
Ronald Coase
1960: The Problem of Social Cost
George A. Akerlof
1970: The Market for Lemons: Quality Uncertainty and the Market Mechanism

8. 3. Economics of centralized market: the theory of firm
1937: The Nature of Firm
1972: Armen A. Alchian, Harold Demsetz:
Production, Information Costs, and Economic Organization
1976, Michael C. Jensen, William H. Meckling:
Theory of the Firm, Managerial Behavior, Agency Costs, and Ownership Structure

9. 4. Economics of Decentralized Automatic Organization (DAO)
Code is the institution:
Peer to peer internet
Blockchain
Token
Smart contract
Automatic decentralized society
Vitalik Buterin
Bootstrapping A Decentralized Autonomous Corporation: Part I

10. 5. Economics of corporate finance
1958-Franco Modigliani, Merton H. Miller-The Cost of Capital, Corporation Finance and the Theory of Investment
1972-Fischer Black-The Capital Asset Pricing Model- Some Empirical Tests
1973-Black & Scholes-The Pricing of Options and Corporate Liabilities
1976-Ross-The arbitrage theory of capital asset pricing
1977-Stewart C. Myers, Stuart M. Turnbull-Capital Budgeting and the Capital Asset Pricing Model：Good News and Bad News
1984-Douglas W. Diamond-Financial Intermediation and Delegated Monitoring
1984, Stevart C. Myers, Nicholas S. Mjluf, Corporate Financing and Investment Decisions When Firms Have Information and the investor do not have
1986, Stanfor J. Crossman & Oliver D. Hart, The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration

11. 6. Theories of corporate finance: Contents
Main fields:
Corporate Governance and Firm Value
Market Efficiency Hypothesis & Event Study Methodology
The Board of Directors
Talent, Incentives, and Executive Compensations
Corporate Control
Capital Budgeting & Investment Decisions
Payout policy
Capital Structure
Corporate Restructuring
Equity issuing
A textbook: Jean Tirole, 2006, The Theory of Corporate Finance

12. 6. Theories of corporate finance: Corporate Governance and Firm Value
1 Morck McConnell,J Cho,M.H 1998

13. 6. Theories of corporate finance: Market Efficiency Hypothesis & Event Study Methodology
1 Fama 1991
2 MacKinlay 1997
3 Fama 1998

14. 6. Theories of corporate finance: The Board of Directors
1 Johnson 1985
2 Weisback 1988
3 Warner 1988

15. 6. Theories of corporate finance: Talent, Incentives, and Executive Compensations
1 Jensen & Murphy, 1990
2 Baumol, 1990
3 Murphy, Shleifer & Vishny, 1991

16. 6. Theories of corporate finance: Corporate Control
Theory:
1 Grossman&Hart1980
2 shleifer&Vishny1986
3 Stein1988
4 Jensen2000
Evidence:
1 Jensen1983
2 Jarrel1988
3 Schranz1993

17. 6. Theories of corporate finance: Capital Budgeting & Investment Decisions
1 McConnell 1985
2 Stein 1989
3 Chan, S 1990

18. 6. Theories of corporate finance: Payout policy
1 Easterbrook 1984
2 Miller 1985
3 Nohel,T 1998
4 Shliefer, agency problems and dividend policies around the world, 2000

19. 6. Theories of corporate finance: Capital Structure
1 MM 1958
2 MM 1963
3 Ross 1977
4 Myers 1984

20. 6. Theories of corporate finance: Corporate Restructuring
1 Servaes 1996
2 Berger 1996
3 Daley 1997
4 Desai 1999
5 Gillian 2000

21. 6. Theories of corporate finance: Equity issuing
1 Smith, Jr, Clifford W., 1986
2 Eckbo, B. E., and R. W. Masulis, 1992
3 Ritter, J. R., and I. Welch, 2002, A Review of IPO Activity, Pricing, and Allocations
4 Schultz, P., 2003