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

  • Shibata, Takashi

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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