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Investment timing, asymmetric information, and audit structure: A real options framework

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  • Shibata, Takashi
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    Abstract

    This paper examines investment timing by the manager in a decentralized firm in the presence of asymmetric information. In particular, we incorporate an audit technology in the agency model developed by Grenadier and Wang [2005. Investment timing, agency, and information. Journal of Financial Economics 75, 493-533]. The implied investment trigger in the agency problem with auditing is larger than in the full-information problem, and smaller than in the agency problem without auditing. Nevertheless, the audit technology does not necessarily reduce inefficiency in the total social welfare.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 33 (2009)
    Issue (Month): 4 (April)
    Pages: 903-921

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    Handle: RePEc:eee:dyncon:v:33:y:2009:i:4:p:903-921

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    Web page: http://www.elsevier.com/locate/jedc

    Related research

    Keywords: Real options Asymmetric information Agency conflicts Audit;

    References

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    Cited by:
    1. Gijsbert Zwart & Peter Broer, 2012. "Optimal regulation of lumpy investments," CPB Discussion Paper 214, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Shibata, Takashi & Tian, Yuan, 2012. "Debt reorganization strategies with complete verification under information asymmetry," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 141-160.
    3. Nishihara, Michi & Shibata, Takashi, 2011. "The effects of costly exploration on optimal investment timing," Review of Financial Economics, Elsevier, vol. 20(3), pages 105-112, August.
    4. Shibata, Takashi & Nishihara, Michi, 2010. "Dynamic investment and capital structure under manager-shareholder conflict," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 158-178, February.

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