Principal Agent Relationships in Co-Financing Deals

Abstract

The academic literature on investments in motion pictures and on co-financing arrangements has identified at least four threats, investors should be aware of: (i) the unpredictability of motion picture performance, (ii) a disadvantageous pre-selection of projects by the majors, (iii) accounting practices that favor the studios, and (iv) the exposure to and ‘forced’ acceptance of studio error, bad judgment and profligate spending (Ferrari & Rudd, 2008). These potential downsides, paired with the unsatisfactory ex post performance and the legal disputes discussed above point to the pitfalls of co-financing arrangements and merit further theoretical as well as empirical analyses.