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Real Investment Decisions Under Information Constraints

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  • GAUDET, Gerard
  • LASSERRE, Pierre
  • LONG, Ngo Van

Abstract

We investigate investment behavior when there is asymmetry of information between owners (the principal) and managers (the agent). The model accepts the standard cost-of-adjustment model as a particular case and is directly compared with it. For all types, information asymmetry distorts the relationship between investment and the cost of capital, and the relationship between investment and the shadow value of capital. In particular, 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 clarifies the interpretation of Tobin's q under asymmetric information and explains some results of the mergers and acquisition literature. En présence d'asymétrie d'information entre propriétaires (le principal) et administrateurs (l'agent), la relation investissement coût du capital et la relation investissement valeur implicite du capital subissent une distorsion pour tous les types. Dans un modèle avec coût d'ajustement par ailleurs standard, il apparaît notamment un régime d'inaction pour une certaine gamme de coûts. Ce phénomène se présente sous une forme différente de ce qu'implique la présence de coûts fixes ou d'irréversibilités,0501s ressemble à ce qui survient lorsque le coût du capital est différent pour une hausse que pour une baisse du stock. L'incertitude, qui prend la forme d'un élargissement de la distribution des types, tend cependant à réduire l'investissement. Le modèle clarifie l'interprétation du q de Tobin sous asymétrie d'information et explique certains résultats de la littérature sur les fusions et acquisitions.

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Bibliographic Info

Paper provided by Université Laval - Département d'économique in its series Cahiers de recherche with number 9515.

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Date of creation: 1995
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Handle: RePEc:lvl:laeccr:9515

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  12. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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  16. Caballero, Ricardo J, 1991. "On the Sign of the Investment-Uncertainty Relationship," American Economic Review, American Economic Association, vol. 81(1), pages 279-88, March.
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Cited by:
  1. Hassan Benchekroun & Ngo Van Long, 1997. "Efficiency Inducing Taxation for Polluting Oligopolists," CIRANO Working Papers 97s-21, CIRANO.

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