Bell, Peter N (2012): Corporate investment decisions under asymmetric information and uncertainty.
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This paper develops a model to study corporate investment decisions using the principal-agent framework. The model has asymmetric information where the agent knows the true value of the company and the principal does not. The model also has uncertainty where the company is presented an investment opportunity with a certain cost and random benefit. The agent must decide whether they will sell stock to the principal and make the investment. Results show that the information asymmetry imposes a cost on the principal because the agent will forgo some profitable projects or undertake some with expected losses. A procedure for the principal to distinguish undervalued and overvalued companies is presented.
|Item Type:||MPRA Paper|
|Original Title:||Corporate investment decisions under asymmetric information and uncertainty|
|English Title:||Corporate investment decisions under asymmetric information and uncertainty|
|Keywords:||Decision making; Investment project; private information; uncertainty;|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design
G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
|Depositing User:||Users 25858 not found.|
|Date Deposited:||25 Apr 2012 00:38|
|Last Modified:||24 Feb 2016 15:38|
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