Shareholders' Unanimity With Incomplete Markets
AbstractWhen markets are incomplete, shareholders typically disagree on the firm's optimal investment plan. This article studies the shareholders' preferences with respect to the firm's investment in a model with aggregate risk, incomplete markets and heterogeneous households who trade in firms' shares instead of directly accumulating physical capital. If the production function exhibits constant returns to scale and borrowing limits are not binding, a firm's shareholders unanimously agree on its optimal level of investment. In contrast, with binding borrowing constraints, constrained shareholders prefer a higher level of investment than unconstrained ones. Copyright � (2009) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 50 (2009)
Issue (Month): 2 (05)
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- Daniele Coen-Pirani & Eva Carceles-Poveda, . "Shareholders Unanimity With Incomplete Markets," GSIA Working Papers 2005-E13, Carnegie Mellon University, Tepper School of Business.
- Daniele Coen-Pirani, 2004. "Shareholders Unanimity With Incomplete Markets," 2004 Meeting Papers 479, Society for Economic Dynamics.
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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