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The influence of moral hazard on investment in financially constrained and unconstrained firms

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  • Keefe, Michael O’Connor
  • Kieschnick, Robert

Abstract

We extend Triole (2006) to link together two seemingly different cases – firms facing potential free cash flow problems versus firms facing financial constraints. The model predicts a large number of disparate findings in the empirical literature and so demonstrates its usefulness.

Suggested Citation

  • Keefe, Michael O’Connor & Kieschnick, Robert, 2014. "The influence of moral hazard on investment in financially constrained and unconstrained firms," Finance Research Letters, Elsevier, vol. 11(3), pages 272-281.
    • Handle: RePEc:eee:finlet:v:11:y:2014:i:3:p:272-281
    DOI: 10.1016/j.frl.2014.01.001
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    References listed on IDEAS

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    1. Michael O'Connor Keefe & James Tate & Henk Berkman, 2013. "Is the relationship between investment and conditional cash flow volatility ambiguous, asymmetric or both?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(4), pages 913-947, December.
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    3. Ivalina Kalcheva & Karl V. Lins, 2007. "International Evidence on Cash Holdings and Expected Managerial Agency Problems," Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1087-1112.
    4. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    5. Dittmar, Amy & Mahrt-Smith, Jan, 2007. "Corporate governance and the value of cash holdings," Journal of Financial Economics, Elsevier, vol. 83(3), pages 599-634, March.
    6. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    7. Jean Tirole, 2006. "The Theory of Corporate Finance," Post-Print hal-00173191, HAL.
    8. Lee Pinkowitz & René Stulz & Rohan Williamson, 2006. "Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross‐country Analysis," Journal of Finance, American Finance Association, vol. 61(6), pages 2725-2751, December.
    9. Lee Pinkowitz & Rohan Williamson, 2007. "What is the Market Value of a Dollar of Corporate Cash?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(3), pages 74-81, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Investment; Moral Hazard; Financial constraints; Free cash flow;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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