Where do we Stand in the Theory of Finance? A Selective Overview with Reference to Erich Gutenberg

An attempt is made to survey key topics currently discussed in the Theory of Corporate Finance. Rather than being comprehensive, the focus is on the role of corporate control in evaluating financial policy. The paper develops the theme and discusses recent objections against the role of the takeover market, and relationship lending as efficient instruments of corporate control.In addition, the contributions of a Erich Gutenberg, an influential German business economist who, back in the fifties, opened up business studies to rigorous economic analysis, are critically reviewed. Special emphasis is given his model of corporate objectives, and the concept of corporate financial equilibrium. Recent models of corporate control emphasizing the possibility of autonomous mechanisms of internal control, are found to address quite similar questions.To date, our empirical knowledge on what corporate control really means is severely limited. To improve our understanding, and to allow a test of predictions derived from the large theoretical literature, more emphasis has to be given to pain-staking, empirical studies on the role of capital markets and financial intermediaries.