IDEAS home Printed from https://ideas.repec.org/p/ide/wpaper/672.html
   My bibliography  Save this paper

Agency Costs, Firm Behavior and the Nature of Competition

Author

Listed:
  • Aghion, Philippe
  • Dewatripont, Mathias
  • Rey, Patrick

Abstract

This paper develops an agency model in which firms can influence their own incentives to provide a non-contractible effort by contracting on other variables (e.g. by committing themselves to some verifiable investment). In such a model the firms' need for outside finance is shown to interact with their product market behavior in a non-monotonic way; for low levels of outside finance a rise in the need for outside finance reduces the manager's incentive to provide effort; but for high initial levels of outside finance a rise in the need for outside finance requires a commitment to higher effort which in turn is achieved through the contractible investment variables. This non-monotonicity has major implications for firm behavior, both when responding to demand shocks or when reacting to a change in the competitive environment.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1997. "Agency Costs, Firm Behavior and the Nature of Competition," IDEI Working Papers 77, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2000.
    • Handle: RePEc:ide:wpaper:672
    as

    Download full text from publisher

    File URL: http://idei.fr/sites/default/files/medias/doc/wp/2000/agency_costs.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giacinta Cestone, 1999. "Corporate Financing and Product Market Competition: An Overview," CSEF Working Papers 18, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    2. Giacinta Cestone & Lucy White, "undated". "Anti-Competitive Financial Contracting: The Design Of Financial Claims," UFAE and IAE Working Papers 453.00, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    3. Da Rin, Marco & Hellmann, Thomas, 2002. "Banks as Catalysts for Industrialization," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 366-397, October.
    4. Ugur, Mehmet & Solomon, Edna & Zeynalov, Ayaz, 2022. "Leverage, competition and financial distress hazard: Implications for capital structure in the presence of agency costs," Economic Modelling, Elsevier, vol. 108(C).
    5. Koskela, E. & Stenbacka, R., 1999. "Agency Cost Debt and Lending Market Competition: Is there a Relationship?," University of Helsinki, Department of Economics 459, Department of Economics.
    6. Nicolas Boccard, 2001. "Financing Start-ups: Advising vs. Competing," CSEF Working Papers 64, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    7. Rosellon Cifuentes, M.A., 1999. "Essays on financial policy, liquidation values and product markets," Other publications TiSEM 802f644e-3e93-4815-bf33-8, Tilburg University, School of Economics and Management.
    8. Al-Jarhi, Mabid Ali, 2005. "The Case For Universal Banking As A Component Of Islamic Banking," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 13, pages 2-65.
    9. Povel, Paul & Raith, Michael, 2004. "Financial constraints and product market competition: ex ante vs. ex post incentives," International Journal of Industrial Organization, Elsevier, vol. 22(7), pages 917-949, September.
    10. Erkki Koskela & Rune Stenbacka, 2004. "Agency Cost of Debt and Credit Market Imperfections: A Bargaining Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 56(4), pages 365-377, October.
    11. Michele Cincera, 2003. "Financing constraints, fixed capital and R&D investment decisions of Belgian firms," Chapters, in: Paul Butzen & Catherine Fuss (ed.), Firms’ Investment and Finance Decisions, chapter 6, pages 129-152, Edward Elgar Publishing.
    12. Salvatore Piccolo & Giancarlo Spagnolo, 2014. "Debt, Managers and Cartels," CSEF Working Papers 365, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • L0 - Industrial Organization - - General
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ide:wpaper:672. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/idtlsfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.