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Interactions between investment timing and management effort under asymmetric information: Costs and benefits of privatized firms

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  • Shibata, Takashi
  • Nishihara, Michi

Abstract

In this paper, we examine the interactions between investment timing and management effort in the presence of asymmetric information between the owner and the manager where the manager has an informational advantage. We find that investment timing is later under asymmetric information than under full information, implying a decrease in the value of equity option. However, in order to minimize any distortion under underinvestment, management effort is greater under asymmetric information than under full information. We show that there are trade-offs in the efficiencies of investment timing and management effort under asymmetric information. These results fit well with the findings of past empirical studies concerning the costs and benefits of privatized firms.

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  • Shibata, Takashi & Nishihara, Michi, 2011. "Interactions between investment timing and management effort under asymmetric information: Costs and benefits of privatized firms," European Journal of Operational Research, Elsevier, vol. 215(3), pages 688-696, December.
  • Handle: RePEc:eee:ejores:v:215:y:2011:i:3:p:688-696
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    9. Shibata, Takashi & Nishihara, Michi, 2015. "Investment timing, debt structure, and financing constraints," European Journal of Operational Research, Elsevier, vol. 241(2), pages 513-526.
    10. Ghulam Hussain Khan Zaigham & Xiangning Wang & Haji Suleman Ali, 2019. "Causal Relation Between Stock Market Performance and Firm Investment in China: Mediating Role of Information Asymmetry," SAGE Open, , vol. 9(4), pages 21582440198, October.
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    14. Trigeorgis, Lenos & Tsekrekos, Andrianos E., 2018. "Real Options in Operations Research: A Review," European Journal of Operational Research, Elsevier, vol. 270(1), pages 1-24.
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