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Incremental cash flows, information sets and conflicts of interest

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  • Rodolfo Apreda

Abstract

This paper attempts to make of the standard incremental cash flow model (SICFM) a functional vehicle for coping with conflicts of interest. After outlining the model, residual rights to cash flows are linked to residual risks. Then, the underlying information sets to cash flows are brought to light, stressing the nurturing factors behind conflicts of interest: bounded rationality, asymmetric information, opportunistic behavior and transaction costs. Next, decision rights and organization forms are included into the frame of the paper. Finally, the core subject section shows how incremental cash flows come in handy to root out conflicts of interest, firstly by disclosing the residual information sets that divide managers, stockholders and creditors and, secondly, by advocating the design of ex~ante restrictive covenants on the uses and sources of incremental expected cash flows.

Suggested Citation

  • Rodolfo Apreda, 2002. "Incremental cash flows, information sets and conflicts of interest," CEMA Working Papers: Serie Documentos de Trabajo. 220, Universidad del CEMA.
  • Handle: RePEc:cem:doctra:220
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    File URL: http://www.ucema.edu.ar/publicaciones/download/documentos/220.pdf
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    References listed on IDEAS

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    1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
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    6. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    7. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-349, June.
    8. Daniel F. Spulber, 1996. "Market Microstructure and Intermediation," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 135-152, Summer.
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    10. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
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    13. Rodolfo Apreda, 2002. "The Governance Slack Model. A Cash Flow Approach for the Budgeting and Accountability of some Corporate Governance Issues," CEMA Working Papers: Serie Documentos de Trabajo. 212, Universidad del CEMA.
    14. Rodolfo Apreda, 2000. "Differential Rates of Return and Residual Information Sets (A Discrete Approach)," CEMA Working Papers: Serie Documentos de Trabajo. 177, Universidad del CEMA.
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    20. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
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    22. Rodolfo Apreda, 2001. "The Brokerage of Asymmetric Information," CEMA Working Papers: Serie Documentos de Trabajo. 190, Universidad del CEMA.
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    24. Rodolfo Apreda, 2000. "A transaction costs approach to financial assets rates of return," CEMA Working Papers: Serie Documentos de Trabajo. 161, Universidad del CEMA.
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    Citations

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    Cited by:

    1. Rodolfo Apreda, 2004. "Enhancing corporate governance with one-and two-tiered convertible preferred stock," CEMA Working Papers: Serie Documentos de Trabajo. 260, Universidad del CEMA.
    2. Rodolfo Apreda, 2002. "How corporate governance and globalization can run afoul of the law and good practices in business: The Enron's disgraceful affair," CEMA Working Papers: Serie Documentos de Trabajo. 225, Universidad del CEMA.
    3. Rodolfo Apreda, 2012. "Embedding Minsky┬┤s taxonomy of cash flows into a corporate finance framework (The microeconomic linkage between speculative and Ponzi schemes)," CEMA Working Papers: Serie Documentos de Trabajo. 497, Universidad del CEMA.
    4. Rodolfo Apreda, 2005. "Public Governance. A Blueprint for Political Action and Better Government," CEMA Working Papers: Serie Documentos de Trabajo. 297, Universidad del CEMA.
    5. Rodolfo Apreda, 2012. "A clinical approach to the governance of conflict-systems," CEMA Working Papers: Serie Documentos de Trabajo. 491, Universidad del CEMA.
    6. Rodolfo Apreda, 2004. "Corporate Rent-Seeking and the managerial soft-budget constraint," CEMA Working Papers: Serie Documentos de Trabajo. 283, Universidad del CEMA.
    7. Rodolfo Apreda, 2003. "THE SEMANTICS OF GOVERNANCE. (The common thread running through corporate, public, and global governance.)," CEMA Working Papers: Serie Documentos de Trabajo. 245, Universidad del CEMA.
    8. Rodolfo Apreda, 2011. "GOVERNANCE RISKS. How to measure them by means of the incremental cash-flow model," CEMA Working Papers: Serie Documentos de Trabajo. 467, Universidad del CEMA.
    9. Enrique Yacuzzi, 2008. "A governance indicator for small and medium-sized enterprises," CEMA Working Papers: Serie Documentos de Trabajo. 390, Universidad del CEMA.

    More about this item

    Keywords

    cash flow; conflict of interest; information set; residual rights;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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