Real investment decisions under adjustment costs and asymmetric information
AbstractWe study the cost-of-adjustment model of investment when there is asymmetry of information between owners (the principal) and managers (the agent). Information asymmetry distorts the relationship between investment and the cost of capital for all agent types, and a regime of inaction appears over a certain cost range, in an observationnally different way than when fixed adjustment costs, or irreversibilities, cause a similar phenomenon. Uncertainty, in the form of an increase in the spread of agents' types, tends to reduce investment despite symmetric adjustment cost and perfect competition. The model gives a new interpretation of Tobin's q under asymmetric information, explaining some results of the mergers and acquisition literature.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 23 (1998)
Issue (Month): 1 (September)
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Other versions of this item:
- Gérard Gaudet & Pierre Lasserre & Ngo Van Long, 1999. "Real Investment Decisions Under Adjustment Costs and Asymmetric Information," Cahiers de recherche du DÃ©partement des sciences Ã©conomiques, UQAM 9908, Université du Québec à Montréal, Département des sciences économiques.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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